Bitcoin Price Analysis: August 2021 Edition

Bitcoin Price Analysis Aug 08, 2021
uncreative title, yes ; but "Bitcoin Price Analysis" was already taken in my folder

Since this has been so long overdue, let's take a look at what's going on for Bitcoin right now.

In order to get a better idea of the long-term view of Bitcoin, I'm going to swap between the daily & weekly resolutions (maybe even throw in a couple looks at the monthly).

Bitcoin Price Analysis

Let's just start on the daily resolution and take a flat view of the chart and start drawing resistance and supports at their appropriate locations.

To start out, there's a horizontal line drawn at the $39k mark; we'll take a look at the multiple price interactions with this zone in a second (which justifies our marking of this zone as a 'support' [now, since the price is above; if it were below, this would be considered resistance]).

There's one more relevant underlying support point as well that should be pointed out before we move forward at the $41k mark (this one is not quite as strong as the $39k support --but it is worth marking, especially for those looking to glean information about short-term / immediate future moves).

Exponential Moving Averages + Lagging Indicators

If you haven't been following Librehash for long, then you're likely unfamiliar with my favorite practice of showing what I've learned in live time while dissecting projects.

Specifically here - I want to re-introduce the concept of "lagging indicators" for those that don't know.

What Are Lagging Indicators?

Most people are familiar with various common technical indicators, right? (i.e., RSI, Accum/Distrib., PVT, etc.).

Generally, these indicators fall into two categories - leading and lagging.

Since I mentioned that we're going to be looking at lagging indicators, I'm going to go ahead and define that one first - starting with the identification of indicators that would fall under this category:

  1. Ichimoku (for the most part; there's a slight 'leading' aspect here in the machination of the 'cloud' itself, which is calculated based on the conversion line, base line, leading span A & B readings [then plotted X # of periods in the future - giving it a forecast/predictive-esque quality to it, intuitively]
  2. All 'Moving Averages' - Of any kind. This goes for 'exponential moving averages', 'SMAs', "Hulls", etc. ; essentially moving averages are typically at the backbone of most, if not nearly all lagging indicators (this will become more apparent as we go along)
  3. MACD (arguable) - The MACD is a unique unicorn that's technically categorized as a lagging indicator, but it has a lot of predictive potential if information gleaned from the indicator's readings is leveraged in the correct manner.
  4. Stochastic RSI - This is composed of two 'fast' moving averages, staggered in relation to one another to help traders assess whether prior price data (that recently occurred), shows any bullish / bearish bias. This is probably something that's more suited for day traders, scalpers, etc., that are looking to get a quick sense for the market at a given moment in time, so that they can enter / exit a position that they will likely modify not too long thereafter.

There may be tons of other indicators that I left off of this list - but the basic gist here is that a lagging indicator (technical analysis), is one that analyzes / factors in prior price data to formulate its readings.

This is why I stated that 'moving averages' are essentially the quintessential lagging indicators because their entire calculation (mathematically) is derived from prior price data (can't have a 'moving average', without prior data points one can construct an "average" from).

Why Are We Looking to Use a Lagging Indicator Here?

Because a lot has happened, price-wise, with Bitcoin since the last time we took a look at it (think this was sometime in May '21?).

So, rather than immediately swinging for a predictive forecast that will tell us whether we should enter / exit, manage positions, drawdown, shrink our position size, etc., we want to first make sure we have (somewhat) of a handle on what the fuck is actually going on.

So let's stop wasting time and get to that!

Exponential Moving Averages (EMAs)

If you're new to my style of trading, know that I glean information from as many technical indicators, chart formations + other financial metric data that I can find. Some folks feel that this creates too much noise, but I see this as gathering more 'evidence' that can help either 'confirm' or 'dispel' certain beliefs that I may have had about whatever asset I'm analyzing at the time.

For EMAs specifically, I chart out five of them specifically. They fall along the following lookbacks: 12, 24, 50, 100, and 200.

I picked 50 for golden ratio purposes, 200 to have the accompanying longer term EMA lookback in case there's a golden / death cross that can be sighted (also worthwhile to see where the price is at in relation to both + where both of those moving averages are at in relation to one another as both of these things provide significant information).

Additionally, the '12' and '24' lookbacks are to help me assess what sort of trend is recently emerging / disappearing in the price action. On the daily resolution, the EMA-50 is 50 periods, so that means ~50 days of price action/data is included in every data point. In some cases, this is helpful as it can show us the general trend of an asset (especially in a chaotic, whipsaw-y market).

But if there's a recently emerging trend (that's starkly different from whatever the prevailing one was prior), then the EMA may be 'stale' to some extent (although this is a market condition that we should be able to intuitively recognize w/o needing to set this ground rule anyway).

Why I'm Being So Verbose: There are a ton of new people that joined us recently and I want to ensure that they're getting the full service package of what Librehash has to offer as well!

With that said, let's take a look at the chart below (which features 5 different EMA lines at the lookback periods that I specified prior).

From the chart above, we can see that:

EMA-12 - $40,249

EMA-26 - $38,043

EMA-50 - $37,366

EMA-100 - $39,042

EMA-200 - $38,755

Takeaways here:

  • The fact that the 12 > 26 is positive (as it should be), and the 26 > 50. Also the 12 is over very other time period (shorter = faster; bullish trends feature faster MA periods at higher price points than 'slower ones' ; this concept is at the heart of why its considered "bullish" whenever certain points cross on the MACD, Stoch, Ichi, etc.)
  • The fact that the EMA-100 + EMA-200 > EMA-50 means our prior observation reflects that there's likely a new, emerging trend that hasn't yet established 'dominance' (as the prevailing trend), on the daily resolution. We'll get more into that further on into this analysis
  • The fact that the EMA-100 > EMA-26, shows us that the trend we're seeing (within the last 50 period lookback), is something that's restricted to within that time frame, not any further back [perhaps this extends to the EMA-75, but we don't use miscellaneous, random points for our EMAs like that]
  • The fact that the EMA-100 > EMA-200, means that the depth from which the past prior bullish action extended isn't too far (or its already been dismantled by the recent bullish trend we saw exhibited within the fastest 3 'MA' periods)

^^ To test that last bullet point, I hid every EMA lookback except for the 100 & 200, to see if there has been a recent cross among those two on the daily resolution.

As I look closer, it appears there hasn't (which is interesting).

From the chart above, we can see that the last cross between these two was on May 25th, 2020 (which is really interesting).

Death Cross Spotted!

Let's check out when the EMA-50 crossed below the 100 & 200 (this is important because bulls are definitely going to want to see the EMA-50 cross above those two points at some point in the not-so-distant future if they're looking for a 'confirmation' that this latest price movement is not a "bull trap" as the blockchain trading pundits continually insist).

In the chart above, we can see that the EMA-50 dropped below the EMA-100 recently (May 25th, 2021), when the price had dipped down to the upper 30's (thousands of USD).

Let's see when the EMA-50 dropped below the EMA-200 (death cross! best to hope that this was a brief drop!)

Why the Double Touch MIGHT be a Valid Candidate for a 'Double Bottom'

Typically double bottoms come at the end of a downtrend in the price.

When looking at Bitcoin from a 'zoomed out', longitudinal view, its hard to argue that Bitcoin has been in an overall downtrend in '21. Sure, it isn't flying the way it was last Fall, but overall, it is still in the positive for 2021 (YTD).

Given the fact BTC is currently trading int he mid-40k's at the time of writing (we'll say $44k), we can comfortably say that Bitcoin is still up +57% on the year thus far.

From the start of the bull market (October 2020), to this point, Bitcoin is still up >300% as well.

That does not mean that Bitcoin avoided the 'bear market' label because that determination is not based on price appreciation, but rather price decline from the ATH to a certain point.

According to the United States government, whenever asset prices fall >20% from all-time highs with the price depression lasting for a sustained period of at least two months, said market is said to be in a 'bear market'.

source: https://www.investor.gov/introduction-investing/investing-basics/glossary/bear-market#:~:text=Glossary-,Bear Market,least a two-month period.

From May 10th - 17th/19th, Bitcoin depreciated by ~50%.

And remained at this depressed price level (from its ATH, circa $60k immediately preceding), for "at least two months" (which takes us to July).

Curiously, it appears that the price has now decided to rebound at this point (August 2021).

Breaking Out the Big Guns - Librehash RSI

Let's move forward to (what I consider to be a leading indicator) - RSI (this is technically listed as a "lagging" indicator; which I firmly disagree with because I only use the RSI for its predictive capabilities even though it does base its readings on prior price data, the Librehash RSI has been tweaked to factor in the 'rate of change' in the acceleration / deceleration of data points listed [from one period to the next], to help us determine whether the emerging trend is moving w gusto / reluctance).

Keep in mind that we're moving to the weekly resolution with this one to start.

Hmm, ambiguous from the outset.

Let's 'zoom in' to the daily resolution.

This one more so fits what I was expecting when I moved down to this resolution. Since Bitcoin was moving sideways (consolidating) for so long (two months, as we specified above), this recent rapid change in price action is something that's bound to make our RSI indicator stand right up to attention (don't make that last line more uncomfortable than it needs to be).

Looks like the abrupt pivot occurred on July 20th, 2021 (from that point moving forward; so again, confirming trend change that began mid/late-July ; obviously we were all here, so we felt the change palpably in the markets if we were in any positions [short or long]),

Looking further, the following can be observed

This is why the indicator immediately signaled green (as the signals are predicated on the Rate of Change of the 'EMA' readings of the normal RSI[14] indicator; broken down into two different 'MAs' to create a "fast" and "slower" average that could be coded 'invisibly' as conditions [i.e., cross above / cross below], that must be met in order to shift the line from one color to another).

To Be Continued

This is not done by any means. There's a lot more that we need to look at.

BUT we're at 2k+ words and counting. So let's allow this to breathe for a second before we delve deeper into Bitcoin's price action (juxtaposed with what we've learned fundamentally), before mapping out any short / long-term investment strategies in the market.

Thus far, I'm not seeing anything definitive...yet. And the 'buy pressure' in this space appears to be trickled over exuberance from the 'traditional markets' (i.e., Dow Jones / NASDAQ / NYSE).

Both the Dow Jones & NASDAQ are notched at all-time highs at the time of writing (August 7th, 2021). Thus, it makes sense that funds / institutions etc., that likely have increased their positions in accordance with the perceived increased potential upside have likely benefited Bitcoin as these funds have recently relaxed their investment rules / caveats to allow for certain funds, family offices & clients to allocate a constrained percentage of their portfolios to blockchain investments (JP Morgan being the latest example of a large investment bank taking this step).

source:  https://www.cnbc.com/2021/08/05/bitcoin-jpmorgan-led-by-jamie-dimon-quietly-unveils-access-to-a-half-dozen-crypto-funds.html

Tags

cryptomedication

Happy to serve and help wherever I'm needed in the blockchain space. #Education #EthicalContent #BringingLibretotheForefront

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