BITCOIN PANIC: Why I Bought The Crash (But Warn of $35k) 📉

Key Concepts

• Technical Analysis: Utilizing chart patterns and historical price data to predict future price movements.
• Bear Flag: A bearish continuation pattern in technical analysis, indicating a potential further decline after a period of consolidation.
• Pivot Lows: Significant low points on a chart used to identify potential support and resistance levels.
• Head and Shoulders Pattern: A bearish reversal pattern suggesting a potential trend change from bullish to bearish.
• Dollar-Cost Averaging (DCA): An investment strategy where a fixed amount of money is invested at regular intervals, regardless of price.
• Risk Asset: An investment whose value can fluctuate significantly and carries a higher level of risk (e.g., Bitcoin).
• Digital Gold: The concept of Bitcoin as a store of value similar to gold.
• Volume Analysis: Examining trading volume to confirm price trends and identify potential reversals.

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Bitcoin Collapse: Analysis and Potential Scenarios

Gareth Soloway analyzes the recent Bitcoin price collapse from $73,000 to $60,000, assessing whether a bottom has been reached or if further declines are likely. He details his trading strategy, having accumulated Bitcoin during the dip, and outlines potential price targets based on technical analysis.

1. Calling the Top in 2021 & Technical Foundation

Soloway highlights his successful prediction of the 2021 Bitcoin top, attributing it to a reliance on technical analysis rather than market hype. He identified a key trendline connecting the 2017 and 2021 bull market highs. Failure to break this trendline signaled a potential reversal, prompting a short position. He emphasizes the importance of trusting charts and recognizing patterns, stating, “As a technician, you trust the charts. All right? While everyone else is hyping things up, you simply trust the charts.”

2. Bear Flag and Recent Price Action

Following the initial short position, Soloway identified a “bear flag” pattern on the daily chart – a bearish consolidation after a downward move. This pattern, characterized by sideways price action, confirmed his expectation of further declines. The recent collapse to $60,000, followed by a bounce to $66,800, is analyzed within this context. He notes the importance of recognizing “bearish consolidation” as a continuation pattern.

3. Support Levels and Bounce Potential (70,000 - 77,000)

Soloway argues that a cycle low is unlikely at this time, but still initiated a long position anticipating a substantial bounce. He identifies a significant support zone between $70,000 and $60,000, based on previous highs (around $70,000 and the 2021 bull market high of $69,000) and extensive price action/chop in that range. This creates a “range of major technical support” due to the concentration of trading activity. He attributes the initial panic selling to fear, stating, “fear is where bottoms are made in the short term at least,” and echoes the Wall Street adage, “when there's blood in the streets that's when you buy.”

He predicts a bounce to at least $75,000, citing a series of “pivot lows” in that zone. Trendlines drawn from these lows suggest a likely resistance level around $75,000 - $77,000. A break above this level could potentially test $80,000 - $81,000.

4. Bitcoin as a Risk Asset & Correlation with Stock Market

Soloway maintains his view that Bitcoin is currently a “risk asset” and not yet a “digital gold,” despite the narrative attempting to position it as such. He emphasizes its correlation with the stock market, noting that Bitcoin tends to lose value when the stock market declines. He observes that Bitcoin made an all-time high months before the stock market, indicating its leading indicator status for risk assets. He states, “I still believe…that this narrative they're trying to kill the narrative that it's a digital gold. I still don't think it is right now.”

5. Worst-Case Scenario: Head and Shoulders Pattern & Potential Decline to $35,000

Despite the bullish short-term outlook, Soloway presents a worst-case scenario involving a “head and shoulders” pattern. He estimates a 30-35% probability of Bitcoin falling to $35,000 if the stock market experiences a significant downturn (10-20% decline). The head and shoulders target is calculated by projecting the distance from the head to the neckline down from the breakout point, resulting in a $35,000 target. He notes this would represent a 72.5% drop from all-time highs, aligning with past bear market cycles.

He acknowledges a potential contradiction to his previous belief that institutional involvement would limit bear market depth, but expresses concern about a broader stock market correction.

6. Trading Strategy: Dollar-Cost Averaging & Position Management

Soloway details his trading strategy, employing dollar-cost averaging (DCA) to accumulate Bitcoin during the dip. He’s currently long Bitcoin, anticipating the bounce to $75,000-$77,000. He plans to lighten up his position upon reaching those levels. He also maintains a small, long-term “huddle position,” adding incrementally on further declines (at $55,000, $50,000, $45,000, $40,000, $35,000, $30,000, etc.). He emphasizes a risk-based approach to position sizing.

7. Volume Confirmation & Panic Selling

Soloway highlights the significant trading volume during yesterday’s collapse, noting it was the highest volume candle in a considerable period. He interprets this as a sign of panic selling and a potential indicator of a bottom, stating, “Volume and panic are an indicator and they go hand in hand.” He explains that high volume during a decline suggests leverage being flushed out and fear driving the market, which often precedes a reversal.

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Conclusion:

Soloway presents a nuanced analysis of the Bitcoin collapse, combining technical analysis with broader market considerations. While acknowledging the potential for further declines, particularly if the stock market weakens, he believes a substantial bounce to $75,000-$77,000 is likely in the near term. He emphasizes the importance of understanding risk, utilizing charts, and employing a disciplined trading strategy like dollar-cost averaging. He remains long-term bullish on Bitcoin but cautions that its near-term performance is heavily influenced by the stock market.