Bitcoin Falls Below the 50 Week Moving Average

Key Concepts

• 50-week Moving Average (50W MA): A technical indicator used to smooth out price data over a 50-week period, often used to identify trends. A close below this level can signal a bearish shift.
• 200-week Moving Average (200W MA): A longer-term technical indicator, often seen as a significant support or resistance level.
• Post-Halving Year: The year following a Bitcoin halving event, historically a period of significant price appreciation.
• Q4 (Fourth Quarter): The last three months of the year, historically a period when Bitcoin cycles tend to top.
• Death Cross: A technical indicator where a shorter-term moving average crosses below a longer-term moving average, often seen as a bearish signal.
• Euphoria Phase: A period of extreme market optimism and irrational exuberance, often preceding a market top.
• Apathy: A state of indifference or lack of interest, which can also precede a market top, as seen in 2019.
• Quantitative Tightening (QT): A monetary policy where a central bank reduces its balance sheet by selling assets or allowing them to mature without reinvestment.
• Counter-trend Rally: A temporary upward price movement that goes against the prevailing downtrend.

Bitcoin's Weekly Close Below the 50-Week Moving Average

The primary focus of the video is Bitcoin's recent weekly close below the 50-week moving average (50W MA). Historically, this event, particularly in Q4 of a post-halving year, has signaled the end of a bull cycle and preceded a drop to the 200-week moving average (200W MA).

• Historical Significance: The speaker emphasizes that this is not a good sign historically. In all prior Q4s of post-halving years, a weekly close below the 50W MA has led to a decline towards the 200W MA.
• Nuances and Comparisons: While historically bearish, the speaker acknowledges nuances and compares the current situation to 2019, where a close below the 50W MA was followed by a recovery above it, and then a subsequent crash. This suggests that a single close below the 50W MA might not definitively mark the cycle's end.

The Bearish Case and Supporting Evidence

The bears have a strong argument, supported by several factors:

• ROI from the Low/Halving: Bitcoin has topped around the same time when measured by Return on Investment (ROI) from the low or from the halving event. This suggests that further significant gains might not be expected.
• Timing of the Top: Historically, Bitcoin tends to top in Q4. The current market action aligns with this pattern.
• Apathy vs. Euphoria: Unlike previous cycles (2017, 2021) that topped on euphoria, the current market sentiment appears to be driven by apathy, similar to 2019. This is evidenced by social interest indicators.
• Death Cross: A recent death cross (shorter-term moving average crossing below longer-term) has occurred, which is typically a bearish signal.

The Bullish Case and Counterarguments

The bulls present their perspective, highlighting reasons why the cycle might not be over:

• Lack of Euphoria: The absence of a clear euphoria phase, where indicators would typically signal a top, suggests that the cycle might not have concluded in the usual manner.
• Slower Move Up: The market has experienced a slower upward trend, which the speaker likens to 2019.
• Potential for Fake-outs: The speaker notes that in 2019, Bitcoin closed below the 50W MA for one week and then rallied back above it. This suggests the possibility of a "fake-out" scenario.

Probabilities and Future Scenarios

The speaker attempts to quantify the probabilities and outline potential future scenarios:

• Probability of Top Being In: Based on the weekly close below the 50W MA and the late stage of the cycle, the speaker estimates a 60-70% chance that the top is already in.
• Confirmation Needed: The speaker prefers to see two weekly closes below the 50W MA for confirmation. If Bitcoin rallies back above the 50W MA (e.g., to $103K) this week, the odds would shift back to 50/50.
• Scenario 1: Top is In (Bearish Outlook):
  • A drop to the 200W MA is expected.
  • A potential scenario involves a drop to the 200W MA (around $60-70K), followed by a rally back up to the 200-day moving average (DMA).
  • This could resemble the 2019 move, with a significant correction (e.g., 50% drop) rather than an 80% drawdown typical of some bear markets.
  • The 200W MA is currently about 50% below the all-time high.
  • Next year is anticipated to be a down year, even if there are short-term rallies.
• Scenario 2: Cycle Not Over (Bullish Outlook):
  • If Bitcoin rallies back above the 50W MA this week, it could be a fake-out, and the odds would return to 50/50.
  • A rally back above $103K with a weekly close would suggest this possibility.
  • Historically, death crosses have sometimes marked local lows within a few days.

Technical Indicators and Market Behavior

• Death Cross and Local Lows: While death crosses are bearish, they have historically marked local lows within a few days. However, at the end of a cycle, this pattern might not hold, leading to a small rally followed by a further dump.
• Rally to the 200-day Moving Average (200DMA): If the cycle top is in, a rally back to the 200DMA is expected, as it has occurred in every previous cycle. The 200DMA is currently a significant distance below the all-time high.
• Diminishing Losses: The speaker notes that bear markets have shown diminishing drawdowns each cycle (e.g., 70% in one cycle, potentially less in another). However, this typically follows a euphoria phase.
• Short-Term Price Action: The speaker emphasizes the importance of observing price action in the immediate days. If the cycle is not over, a sizable rally should occur within the next few days. If Bitcoin remains at low prices by the end of the week and experiences a second weekly close below the 50W MA, the odds of the cycle top being in increase considerably.

Key Arguments and Perspectives

• "Trade the market that you have, not the market that you want": This is a recurring theme, urging traders to adapt to current market conditions rather than wishful thinking.
• Uncertainty in Markets: The speaker stresses that no one truly knows what will happen, and prediction markets constantly change. Conviction in a specific outcome is cautioned against.
• Importance of Confirmation: The speaker advocates for waiting for confirmation (e.g., two weekly closes below the 50W MA) before making definitive conclusions.
• Bare Markets are Normal: The speaker reminds viewers that bare markets are an inherent part of the Bitcoin cycle.

Notable Quotes

• "Trade the market that you have, not the market that you want."
• "When you look at all prior Q4s of all prior post having years, when you get weekly closes below the 50we moving average, it historically has meant the cycle is over."
• "The bears have a solid case. They do."
• "The bulls are saying, well, hold on a second. We didn't have a euphoria phase, right?"
• "We don't top on euphoria, we top on apathy."
• "I would say at this point, given the fact that we've closed below the 50we moving average and given how late cycle it is, I would say there's probably a 60 to 70% chance that the top is already in."
• "Bare markets are a normal part of the cycle, right? Like they are. They happen."
• "No one actually knows. like no one actually knows."

Conclusion

The video concludes by reiterating the significance of Bitcoin's weekly close below the 50W MA as a potential bearish signal, especially given the historical context of Q4 in post-halving years. While acknowledging the possibility of a fake-out and the bullish arguments, the speaker leans towards a 60-70% probability that the cycle top is already in. The 200W MA is identified as a key level to watch in the coming months if a bearish scenario unfolds. The speaker emphasizes the need for continued observation of price action and waiting for further confirmation before making definitive trading decisions. The next video is promised to delve deeper into the bull and bear cases.