Buy when others are fearful, sell when others are greedy
Monday 9th March Dow Jones had its first-ever -2000 point fall. Meanwhile, Bitcoin has been falling as well from the February high of $10,500 to the low of $7,650 on March 9th. That’s -27% in a month.
Now we are consolidating between $7,800 and $8,100.
Is this the bottom or will we see more downside?
Are Bitcoin and the stock market correlated?
Travel and supply chain disruptions have a significant impact on the profitability of the companies. It makes sense that the stock market is falling.
However, Bitcoin is not tied to supply chains and profitability of companies. It is only driven by supply and demand. Which are heavily influenced by people’s emotions and perception of Bitcoin.
They have had similar down movements recently, but I don’t see the correlation with the stock market. The price action of Bitcoin is still following the same trend line since 2019.
Long-term trend is looking good for Bitcoin
Although the search trend for Bitcoin peaked a the end of 2017, the interest is now steady and an increasing number of new wallets are being created every day.
Bitcoin is very much alive.
Bitcoin is a deflationary asset which means there is a limit on how many Bitcoin there are in the world. The next halving event in May 2020 will cause the bitcoin miner’s rewards to be cut in half which will cause the supply of Bitcoin to go lower.
The previous halving events in 2012 and 2016 have caused Bitcoin to reach new all-time highs within 1 year after the halving.
If the demand and the trend for Bitcoin stay the same, I don’t see why we couldn’t reach new all-time highs for Bitcoin at the end of 2020 or the beginning of 2021.
Coronavirus panic sell-off
The Fear & Greed Index factors in data points from volume, social media, momentum and other sources.
When the index shows extreme fear, we expect to see a market bottom.
When the index shows greed and euphoria, we start to expect a market top.
Despite the index now showing high amounts of fear, it doesn’t mean the price cannot go lower.
What is important to remember is that fear cannot drive the price forever, unless people stop using the asset which I don’t see happening with Bitcoin. At some level, there will be opportunists that see Bitcoin being undervalued and start buying, driving the price higher again.
Prepare for coronavirus but don’t panic
Coronavirus is a deadly disease and it will cause disruptions. It might be smart to start stocking up on basic supplies and food in case there will be shortages in your area.
But what we know now is that it will not kill everyone and life will continue after the outbreak is contained. Even if it takes 6 months, 12 months or 2 years.
People who prepare, win. People who react, lose.
Looking at the weekly chart for key price levels
The weekly chart shows us that the Bitcoin price is now on a major weekly support level and still following the same trend line since the start of 2019.
At the end of last year, the support level was tested multiple times and broken but we bounced off the trend line. Nowe both of them are aligned which makes it very strong.
On March 9th the Bitcoin price wicked below the trend line and touched the support which immediately caused the price to go back up above the trend line.
If the price doesn’t reverse in a few days, and we see more continue consolidation for a few more days on this level, the trend line will be broken which could then lead to breaking the major support level at 7,700.
How low can the price go if we break $7,700 support?
Below $7,700 the next two major areas that can easily be seen are…
$7,300 and $6,460.
At $7,200-7,300 we can see two overlapping Fibonacci Retracement levels from 2019–2020 run and the previous run of 2018–2019.
$6,460 is another Fibonacci retracement level and it is also the bottom of the recent bull. In addition, $6,460 happens to align well with the price action from 2018 causing it to be a major support area.
If the price falls below $6,460 many Bitcoin miners become unprofitable and there will be buyers looking to find excellent buying opportunities driving the price up.
There is a major resistance level at $8,400–8,500. We might see it either break that level or use that level to gain momentum for a downside swing. When $8,400–8,500 level is broken to the upside, we can expect more upside.
What level should you buy or sell in case it goes lower?
Timing the bottom is extremely hard. I would start buying now because, after the halving, it is not likely we will see $7,700 again.
If you could go a year back in time, and know what you know now, what would you do when Bitcoin was $4,000?
A good way to buy Bitcoin is by dollar-cost averaging. This means that you start buying now in small increments. That way you can get a better price if the price goes lower. And even if the price goes higher, you will still likely get Bitcoin at a good price.
I would not sell my Bitcoin even if the price goes lower as I believe in the fundamentals of Bitcoin are strong and fear will eventually subside.
Think long-term and join the Collective
This is not financial advice and you should make all decisions carefully in a way that you feel comfortable even if your decision causes you to lose money.
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