Crypto investors aren’t afraid of much… except the weekend.
That’s because when bitcoin falls to the tune of 10-20% in a single hour, it tends to happen when almost no one expects it.
And it happened again this weekend.
On Friday, bitcoin was trading at $52,200 at 11:50 p.m. Then, at 12:27 a.m., it fell to about $42,300… a 19% crash in less than an hour.
The only real trigger seemed to have been leveraged positions getting liquidated at the same time.
But, this isn’t new for bitcoin…
These episodes seem to happen when bitcoin’s order book is thin and vulnerable – which happens on the weekend. There just isn’t a lot of liquidity to absorb all the leverage coming off all at once – so prices can collapse fast.
And by doing so this weekend, bitcoin hit our downside target that we issued on November 19 when we said:
Right now, my price target is around the $50K level… and maybe a tad lower. You can also see from the chart that the $48K-$50K area also had a sizeable volume buildup and prices used it as a springboard to recapture all-time highs.
After reaching a flash crash low around $42K, bitcoin quickly recovered all the way back to $49K.
Once these leveraged positions get shaken out, bitcoin prices reset, and new buyers start to come in… And it happened this time as well.
But, November 19 wasn’t the only time we called for bitcoin to fall… on October 22 during record highs I stated,“…the lack of enthusiasm from the big whales should make investors take a step back, take some profits, and wait for better price levels.”
Well, those better price levels may have come over the weekend… and those whales may have been stepping in at the lows.
That’s because the same indicator we used to stay away at $65K is the same one showing $40K may be the low for now.
Let me explain…
Since there’s a lot of different exchanges out there, bitcoin can trade at different prices.
But, since most institutional investors use Coinbase to trade crypto, the price discrepancy gives traders a lot of insight at critical technical levels.
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When institutional buyers start buying, the price on Coinbase can trade higher than other exchanges (like Kraken) for a short amount of time… which is a sign of institutional interest.
And at $65K… there just wasn’t any. In fact, they were selling into that strength… prompting us to recommend staying away from bitcoin at those levels.
But it was the exact opposite this time around when bitcoin fell almost 20% over the weekend.
Take a look at this chart…
It’s almost a perfect mirror image of what happened in October…
You can see how the Coinbase/Kraken spread (dashed line) jumped to trade at almost $1,000… meaning the prices on Coinbase were almost $1,000 more expensive than on Kraken (another crypto exchange).
This type of price difference doesn’t last long as you can see that spread went all the way back to zero… but it signals someone big enough was buying in.
That’s a great sign for bulls…
It sets a line in the sand. And coincidentally, that line was also the 200-day moving average (MA) at $46K – a key technical support area.
So, not only did bitcoin get some institutional buying at those levels, but it bounced right off that key level.
Unfortunately, it may have been hard to buy at $42K on Saturday midnight… but it looks like bitcoin may try and consolidate here and make its way back up to retest $55K.
Right now, the 200-day MA is at around $46K, so I expect bitcoin to retest this level a couple of times (at least) before moving higher.
But if that chart holds true as it did before… then prices are likely heading higher from here.
Regards,
Eric Shamilov
Analyst, Market Minute
Reader Mailbag
In today’s mailbag, Market Minute subscriber James shares his thoughts on Eric’s recent essay on the Fed and inflation…
Dear Eric, calling Jay Powell an “ivory tower economist” is quite generous. I’m sure you know he’s a lawyer by training.
– James I.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].