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Bitcoin Technical Analysis 23 November 2021

Exclusive Research

  • Bitcoin maintained previous weekly candle low of $55,700, faces next resistance at $58,200.
  • Gold/BTC re-test of 50-day MA is bearish for BTC, would need rejection to suggest further short-term upside for BTC.
  • Invalidation of the short-term bullish thesis would be a ~13% downward spike to next level of support at $49,900.
  • Steepening yield curve lifts US dollar to new yearly highs, remains negative for risk assets.

Investment Idea

Bitcoin is down 17% from ATHs on 8 November. As month-end approaches, this will be another important week for bitcoin as the digital currency looks to rebound following last week’s dismal performance.

Potential

In addition to fundamental analysis, the technical analysis of a chosen cryptocurrency should start with an understanding of larger time frames, i.e. monthly, weekly and daily charts. May, June and July had lows of ~$28,000 to ~$29,000, that essentially formed a triple bottom and served as a base for the leg up to our current levels. July formed a bullish engulfing candle that increased the likelihood of a move higher and the subsequent, strong August monthly candle validated the move higher. September was a slight reprieve to the consistently bullish price action that allowed accumulation by both retail traders and whales. The consecutive breakout within October concluded the bull flag pattern. Currently, the US dollar has clinched YTD highs at the expense of risk assets. This is already playing out in traditional markets with the tech-heavy Nasdaq selling off 123 basis points on 23 November.

A closer look at return distribution shows a high conditional probability for more downside volatility if BTC cannot break above $58,200 in the short term. Currently, BTC is down 646 basis points for the month of November.

Risk

Risk is an all-encompassing term that includes both items not under our control, such as news catalysts, and factors that can be managed. Let’s focus on the latter with methods to alleviate devastating losses to your portfolio. While some argue that a lack of diversification can lead to excess market returns, it’s generally better for the average investor to hedge their bets via allocations in multiple cryptocurrencies. Being overweight in a particular sector or cryptocurrency is dangerous and should only be left to the most experienced investors. In any case, this does not exclude us from holding BTC as the majority, or anchor, within our portfolio. Beyond BTC, the other majors such as Ethereum, Cardano, Avalanche and Solana can compose the remainder of the portfolio. In case a particular cryptocurrency falls out of favour, you’ll have others that could make up for the losses.

The timing of trades is very important, as your cost basis will largely contribute to your ability to make decisions on a logical basis, rather than on emotions. For instance, an investor that purchased a cryptocurrency at its all-time high, will feel much more panicked from a 20% pullback than an investor that purchased that same cryptocurrency at lows and is still in profit. The former investor, based on their own risk tolerances and limits, may be inclined to sell on the dip, rather than hold or accumulate more. This example is a perfect segue into the topic of trade execution.

It’s extremely difficult to time a top or bottom, so it’s typically more advantageous to average into a position over three or four tranches of 33% or 25%. This allows a greater margin of error. Over the long-term, it allows you to cut your losses quickly and with minimal loss. An illustration of this principle at work is entering a 100% position at all-time highs and hitting a stop-loss of a 10% drawdown due to a break of support which would invalidate the long thesis. The loss is 10% on the entire position, however, scaling into the position would have resulted in a 10% loss only on the partial position. On the flip side, one must curb emotions and be okay with missing out on gains from a 100% purchase, should a cryptocurrency catch momentum and run higher without a pullback. The long-term benefits of utilising this game plan greatly outweigh the short-term capital gains.

Conclusion
While the probability of BTC’s current move points upward, a thrust downward to the next level of support at $49,900 is significant due to the CME gap that exists. It’s best never to expect anything, but rather react to the price action with a game plan that considers both the bearish and bullish scenarios. For example, if you are like most participants within the cryptocurrency market that are exceedingly bullish on BTC, then view a pullback as an opportunity to increase position sizing and a breakout as an opportunity to take profits by scalping on the excess BTC beyond core position holdings.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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