(Click on image to enlarge)

Bitcoin chart courtesy of StockCharts.Com, annotations by Mish

Support at 40,000 broke convincingly today, as expected. The 40K line was tested five times and held. The sixth failed.

This is the expected behavior. The more often support (or resistance) is tested, the more likely it is to break.

There is only minimal support at 38,000 but it could hold. The 38,000 level was a breakout zone after about a month of upward sloping consolidation. If the 38,000 level fails, then technically, there is likely to be a test of the 34,000 to 36,000 area.

Daily Technical Setup Warning

The daily technical pattern for Bitcoin is weak. The pattern includes a big air pocket coupled with euphoria and continual hype over ETF approval.

The air pocket could easily collapse all the way to 30,000 and that would not at all be surprising.

This is a warning not a prediction.

Bitcoin Weekly Chart

(Click on image to enlarge)

The weekly technical picture is not great either. There is minimal support at the 35,000 level with a potential test of a breakout at 30,000.

There is strong support at 25,000 which I would expect to hold, at least for a while, if it gets there. If that fails, there is additional support near 20,000 then not much until the 15,000 to 16,000 level.

Should Bitcoin fall to 15,000 I would expect a big bounce at that area, back up to 22,500 or 25,000. First, I would expect a big bounce at 25,000 or so, back up to 30,000.

Technical Analysis

Technical analysis (TA) is a tool. It is not a forecast. Rather it is a “If this then that is likely” idea.

Many think it is preposterous voodoo. But many technical traders don’t bother with fundamentals at all.

Used properly, TA is a good tool. One can buy at support and exit if it breaks. TA provides good entry and exit points for traders.

Why TA Works

Suppose you bought Bitcoin at the 48,000 level anytime in the past only to watch it plunge to 15,000.

You say to yourself, “If I can ever get out even, I will sell”. Many who bought at 48,000 will be thinking the same. Technical traders are aware of this idea and are willing to short at such spots.

Next, look at that 25,000 area. People debated getting in but didn’t, and regretted it. When Bitcoin hit that level a second time, many jumped in. Technical traders plowed in.

TA works for two reasons. The first is that many people, not even aware of TA react on it. Darn I wish I bought. Or darn, why the hell did I buy, I want out if I can break even.

The second reason TA works is traders who do understand TA are willing to take actions at support and resistance. The combination is self-reinforcing, not voodoo.

A Maxi Debate: What is Bitcoin and What is Money?

A Twitter exchange on Bitcoin caught my eye. I wade into deep waters of the debate, but first we need to agree on a definition of money.

For a discussion of the fundamental picture and whether or not Bitcoin is money, please consider A Maxi Debate: What is Bitcoin and What is Money?

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