Bitcoin day trading is oddly mesmerizing with its jagged lines, overlapping patterns, and swirling colorful indicators. Each component purports to unlock the mysteries of just how the market will move in the future. Technical analysis, replete with its Relative Strength Index (RSI) and alligator moving averages, promises a surefire roadmap to riches. So, is it really that easy? Have we lost sight of what the true goal is? We’re allowing ourselves to be distracted by short-term market sentiment rather than accepting those irreversible economic forces at play that really put value behind Bitcoin. I believe it’s the latter.
The charm of technical analysis is real. The RSI, one of the most popular indicators, claims to spot overbought and oversold conditions, indicating price reversals before they occur. A reading above 70 indicates that Bitcoin is overbought, pointing to a potential future sell-off. On the other hand, if the reading dips below 30 this suggests oversold territory, which can signal a buying opportunity. Traders adjust these RSI levels when Bitcoin’s price action is in a long-term horizontal Bitcoin or trading range. Then, of course, there are the moving averages—the 50-day and 200-day MAs—which serve as barometers of market sentiment. A “death cross” when the 50-day moving average falls below the 200-day moving average sends shivers down spines. In contrast, a “golden cross” creates bullish euphoria all over the financial markets.
Let's be honest: how much of this is truly predictive, and how much is simply a self-fulfilling prophecy? Short sellers can have a huge influence on the market if they think the RSI is an indicator of an impending sell-off. Or because it predicted something earth-shatteringly wise on its own. It’s a vicious feedback loop, a zero-sum game of trying to guess what other market participants will do.
My trepidation comes from a more macro point of view. Technical analysis focuses in on the short-term price action and the general psychology of the market. It bases on historical cycles and technical indicators, but many times forgets to consider the fundamentals behind Bitcoin’s real value. Adoption rates, technological developments, use cases, and the arcane workings of tokenomics are crucial considerations. You can gain an intuitive understanding of these factors through basic analysis.
First, think about the macroeconomic picture. In January 2021, Chamath Palihapitiya voiced a sentiment that resonates even more strongly today: Bitcoin as "insurance" against untrustworthy leadership. Bitcoin is the best hedge we’ve got against the growing overreach of government and the debasement of our currency. This narrative is much more compelling during periods of economic distress.
Among other things, it highlighted the need to treat Bitcoin as a unique asset class, not comparable to other digital currencies. This is important because it indicates that a major financial institution has come to understand Bitcoin’s unique and entirely new market position. This status is more than just squiggles on a graph. Our recently published report, Bitcoin First Revisited reminds us why it’s important to understand the fundamentals of Bitcoin. For one, it implores readers to not let Bitcoin be defined by the larger cryptocurrency space.
The next Bitcoin block-halving is scheduled for April 2024. This exciting development will be the most important factor moving Bitcoin’s price. This upcoming event will halve Bitcoin’s inflation rate to a mere 0.84%. As such, it will make Bitcoin more scarce which, all things being equal, might lead to more demand. Can an RSI chart predict the psychological impact of a split-up supply on a very counter-intuitive global market. My guess is, no way.
In addition, the rapidly changing environment around Bitcoin ETFs is affecting the dynamic of the market. As much as 80% of the current spot Bitcoin ETF flows are from self-directed retail investors. There’s huge opportunity for programs to align with top-producing wirehouses. Now, institutional investors are beginning to allocate just a fraction of their portfolios into Bitcoin. This dramatic increase in demand may be a much greater surpass anything forecasted by TTI’s technical indicators.
Technical analysis is not worthless Of course, I am not saying that technical analysis has value. When used correctly, it can be a great resource to gauge market sentiment and find good entry/exit points. Savvy traders might indeed start purchasing assets when the market is fearful (Fear & Greed Index < 30) and selling them when the market is greedy (Fear & Greed Index > 75). Using only these indicators is like sailing a boat across the ocean with only a compass. When you consider those critical influences of weather patterns and ocean currents, it’s remarkable that you’d do so.
The beauty lies in the detail, as OverTraders.com promoted. The secret, as always, is a big-picture vision. By deploying technical analysis alongside a thorough understanding of fundamental drivers, investors can get a much more holistic picture of the markets. This simple yet powerful approach empowers them to make smarter, more informed decisions. If you want to succeed in the long haul, you need to know why Bitcoin is valuable. These three factors are its scarcity, its potential as a hedge against inflation, and its growing acceptance by retail and institutional investors.
Bitcoin’s price is much more than a technical analysis charting exercise. It’s influenced by a rich interplay of economic forces, technological advances and human behavior. Technical analysis can give insight into short-term market swings. Only by knowing the first principles drivers will you be able to unlock Bitcoin’s long term potential.
