China Bans Bitcoin (for the 100th time) — Price Analysis
If you’ve been in the Bitcoin scene for more than a year, you would have already seen this headline on a number of occasions. Every single time this rumor spreads like wild fire on news outlets and social media alike; as masses lap up the tactical FUD bomb. It never amounts to anything and a few months down the track the same rumor is spread once again. Rinse and repeat.
The reality is that people who take the bait and sell their Bitcoin out of fear are being schooled on an inside trade. A trade orchestrated by market makers who understand the true nature of Bitcoin, and have the capital to move the price as they please for their own gain. Before the news of a China ban hits the various information channels, these market makers have already started the sell off and are sitting on large short positions. The fear, uncertainty, and doubt is spread to help shift the price in their desired direction toward their profit-taking target.
As the price nears this predetermined target, emotional traders continue to sell at a loss and believe the price will drop thousands of dollars because of fake-news spread by the media and stupid Bitcoin commentators. However once the market maker’s target is hit, they take profit on their shorts and buy Bitcoin back up towards it’s previous highs at a discounted price. Emotional traders then experience fear of missing out and are forced to re-buy at a higher price than they sold.
A Case For Technical Analysis
With this recent ‘China Ban’ many were quick to say that it was the reason for the price falling. Below is a chart featured on prominent financial news website ZeroHedge, which illustrates the price moving down because of rumors.
This is the consensus among the masses for the cause of the price drop. But it can be proven otherwise through technical analysis that reveals the market maker’s plans.
Below is a chart I published on Twitter right before the first sell-off on September 2. It shows resistance on the logarithmic BTCUSD chart, which we have already failed to break through on a number occasions this year. It should have been expected by many that we would crash here too, unless the price broke past this major resistance line. The market makers took advantage of the bullish sentiment in the market and profited by selling here and starting the China ban rumor.
After the dump started I was able to determine that the China news was FUD and therefore devised a plan to fill long positions at the bottom of the dump. Retraces in Bitcoin are rapid and therefore this would offer a better risk/reward ratio for me, instead of trying to trade on the choppy movement down.
I published another chart before we reached the bottom saying that we will not go lower than 3900. The reason being that the 78.6% fib level was a good area to pull back to during up-trends. We had already formed solid support at this same level previously.
This turned out to be the exact plan of the market makers. The price reached 3900.1 USD and turned around, retracing over 700 USD in the next 2 days. That’s enough proof that technical analysis is a greater tool than trading off fundamentals in Bitcoin, hands down. It also allowed me to identify a good level for taking profit before the next wave of China FUD came along, sending the price back down toward 4000. On this move it did not make a lower low, which indicates further consolidation and tightening of the current range.
So where to from here?
Based on market cycles (which I will cover at a later date) I’m not ruling out the top for this bull market just yet. I believe we can go higher before the year is over, but in saying that I will trade according to what the market gives me. The chart below presents two possible scenarios I’m looking at, once the market gets over the FUD and the consolidation ends.
If we break out to the up-side, the major resistance on the logarithmic chart will be tested again. That will almost certainly break through this time, and if it does I believe we will go to 10k USD very quickly.
If price breaks downward, we will drop to about 3400 USD before finding support and bouncing.
I hope you enjoyed this read. I’m aiming to publish more articles and market analysis posts going forward from here.