The funny thing about Bitcoin right now is that people either want to read or hear everything they can about the asset...or they’re sick and tired of everybody talking about it. (The latter group tends to be the ones who have never owned it or ever traded it.) However, whether one has owned Bitcoin or traded it...or not...its action over the next week or more should be quite important for the short-term action in the stock market.
First of all, it’s a good bet that a lot of traders own Bitcoin on margin. No, we’re not saying that most people own it on margin...we’re just saying that a lot of people do. (The reason we say that it’s a “good bet” that a lot of Bitcoin holders are leveraged is because Bitcoin rallied over 280% in just 3 months...at a time when margin debt exploded to new all-time highs.)
Second of all, Bitcoin fell 30% from its highs...to its overnight lows last night...before bounce from a level below $29,000 to one above $31,000. If the overnight action was THE wash-out move, then this morning’s bounce in Bitcoin will keep on truck’n...and we’ll see new all-time highs within the next couple of weeks (maybe even the next couple of days)..........At its low last night, Bitcoin had retraced a Fibonacci 38.2% of its rally from the beginning of October (when the “strong rally” started to become a “parabolic” one). Thus the worst of the decline in Bitcoin just might be behind us.
However, IF this morning’s bounce does not last...and rolls back over at any time over the next week or so...and breaks back below the overnight lows (of $28,817)...it’s going to be “Katie bar the door.” If Bitcoin breaks below those overnight lows, the short-term momentum players will throw-in the towel ...