Bitcoin analysis for Monday June 24 and Friday November 22, 2019
Video duration: 15min 26sec. Apologies for low quality audio.
Monday June 24, 2019: A question on Bitcoin.
Part 1 duration: 10min
Bitcoin, if you’ve been paying any attention to it, has been doing great. This is the Bitcoin Index. I threw up the weekly chart. That was last year’s blow off top. We had a Triangle, a bear breakout, and then a reversal up, and three legs up – one, pullback, two, pullback, three.
Ten – this was a likely resistance area. Ten, a big round number, likely a resistance area. But this is up very strongly. We have another resistance here, so spike, pullback, channel. However, I think the odds are we’re going higher. How much higher? I don’t know.
Bitcoin is like gold
Bitcoin is kind of like gold. You have a bunch of idiots on TV that say irrational things. When it’s going down, they say it’s going to go up, so all the way down, they kept saying, “It’s a buy, it’s a buy, it’s a buy, it’s a buy, it’s a buy,” right? And on the way up, “It’s a buy, it’s a buy, it’s a buy.” It’s like gold. Whenever gold is going down, you’ll hear the gold bugs on TV say, “Ah, it’s going down. You’ve got to buy it. It’s great value. It’s cheap.” And when it’s going up, they’ll say, “Oh, you’ve got to buy it. It’s going up. The momentum is good.”
If you ask them, “When do you sell it?”, they’ll pause and say, “Oh, we never sell it. We always buy it.” The same is true with Bitcoin. There are people – most of the people they put on television are Bitcoin crazies, just like the gold crazies. No matter what Bitcoin is doing, it’s a buy. “Oh, pullback here, it’s a pullback. It’s a buy.” Yeah, but if you bought here, you lost 75%. It only came down to $3,000.
In a bull trend
So it’s clearly in a bull trend. Big, big reversal, but it went above this resistance, above this, above that, and it’s testing this. A lot of traders want to buy pullbacks. This is the weekly chart. Usually once you get a pullback, you don’t want to buy it because it looks like a bear trend reversal.
So for example, here. Here’s a pullback in a bull trend. It’s a Higher Low, but nobody wants to buy it. Up here, everybody wants to buy it, but that’s really not a good place to buy it. You want to buy a pullback. Daily chart, got a pullback here, pullback here. These are the times when you buy it, and you can see so many traders bought, we got a gap up.
I would not buy it up here. If you want, you could trade really small, but your stop is down here or down here, so you’re risking 30%, and that is a lot to risk. It’s probably better to just patiently wait, or to get closer to the Moving Average and then buy above a bull bar and try to get the next leg up.
Do I think it’s going up to a thousand, a million, pick a big number? I don’t know. Everybody calls it digital gold. They don’t really say what they mean by that. I do think it’s digital gold. I think it’s a storehouse of value. There are enough buyers below so that at least for the next year or two or three, it’s probably not going to go to zero. Traders will buy selloffs.
Bitcoin as a currency?
But I do not think it’s ever going to be a currency. I talked about this a month or two ago. It has a fundamental problem. The nature of its structure, the nature of how the transactions are confirmed, is a huge problem because right now, the fastest a transaction can get confirmed is they can do 7 a second. You’ve got to be able to do 50,000 a second, right? But the way Bitcoin is structured and the way the confirmations take place, it’s impossible to do 50,000 a second.
If you look at Visa or MasterCard, do you think they can only process 10 transactions a second? No, they can process thousands a second, and that’s what Bitcoin has to be able to do if it’s going to become an actual currency – a currency being an item you can use to buy things and sell things. I don’t see that happening. Bitcoin, it would have to totally change its structure. Keep the name, but totally change the structure.
Bitcoin alternatives – Libra?
More likely what will happen is some of the other coins that allow a lot more transactions per second will become the main currencies. For example, Facebook has Libra. They’re designing that to basically replace credit cards, and on the surface, you say, “Ah, that sounds good. I pay a 3% credit card fee, and therefore if I trade Libra, everything will be 3% less.” No. Facebook is going to pocket that 3%, so you will not pay a penny less.
Also, for example, one of my credit cards, I get 3% back. So… I don’t know how the credit card company makes any money. Every transaction I get, I get 3% back. I don’t see how Libra offers any advantage. It offers an advantage to Facebook because to use Libra, you’re probably going to have to deposit money into Facebook, like a bank. Facebook then has billions of dollars sitting in an account, and they can lend it out like a bank, and they can collect the flow.
So they can make a ton of money off Libra. Plus, a lot of people will start buying on their site the way they buy on Amazon, and they’ll keep more eyeballs on Facebook. More people will click on ads and buy things on Facebook, and Facebook gets paid for every one of those clicks. So Libra is a really good thing for Facebook, and that I think has a much better chance of actually being a currency, a method of payment and transactions, than Bitcoin.
Bitcoin is like gold
Bitcoin is going to be kind of the old granddad, kind of like gold. You can take gold to Walmart and you buy a candy bar and see what happens. You can’t use it. You cannot go with a block of gold into Walmart and buy soup, right?
And Bitcoin I think is going to have the same problem. It’s not going to be used for transactions; it’s going to be like gold, a store of value. You buy it because you think it’s secure and you think all other cryptocurrencies will somehow be correlated to Bitcoin, and as long as enough people keep investing in Bitcoin, the whole cryptocurrency market will be stable and people will not panic out and send everything to zero overnight.
That’s one of the complaints about Bitcoin. If the cryptocurrencies die, if the United States government says cryptocurrencies are illegal – for example, a lot of countries, cryptocurrencies are illegal. I think India, I think cryptocurrencies are illegal. Anyway, there are a bunch of countries where cryptocurrencies are illegal.
If one day you wake up, turn on the news, and you see the United States just decreed, or the Federal Reserve just decreed that, or the SEC, or anybody, just decreed that cryptocurrencies are illegal, a pyramid scheme, right, or a Ponzi scheme, Bitcoin could go to zero overnight. That’s the risk.
I don’t think that’s going to happen, and I think it won’t happen because the government knows that cryptocurrencies and blockchain transactions are probably going to be around for a lot of years, and banks will start incorporating them.
Jamie Dimon and Warren Buffett
A year ago, Jamie Dimon, the most respected banker in the country for the past 10 years, CEO of JPMorgan, said Bitcoin was garbage and cryptocurrencies were garbage. Well, JPMorgan is now starting to use cryptocurrencies. Warren Buffett, considered the world’s greatest investor possibly in history, has said that Bitcoin is rat poison, “triple rat poison.” But, you know, he also said Google was stupid when Google came up about 10 years ago, and he did not buy Google.
Warren Buffett is very good at picking candy stores to buy. Underwear, like Fruit of the Loom, to buy. Furniture stores, like RC Willey. He’s not so good at picking other things. I think he’s a really wise person. But when it comes to actually picking stocks, I would not pay much attention to what Warren Buffett does. If you look at the stuff he buys, do you really want to buy Fruit of the Loom? Do you really want to buy See’s Candy? Do you want to buy craft booze? No, you don’t want to buy the garbage that he buys. Geico, he owns Geico. Do you want to buy Geico? No.
But if he gets an 8% return or a 6% return, everyone says he’s a genius – and he is. It’s a really profitable thing. But as a trader or an investor, he’s buying stuff that you don’t want to buy. I would not pay much attention to what Warren Buffett says when it comes to Google, and I would not pay much attention to what Warren Buffett says when it comes to cryptocurrency.
Where is Bitcoin going next?
So three legs up, no sign of a top. Can we come down and test this gap, a 50% pullback? I don’t know. Near term, 10,000 is probably going to be support. This high might be support. This low, 8,000, might be support. But this is up so strongly, I think we’re going higher. Tom Lee, who all through here kept saying “Bitcoin’s a buy, Bitcoin’s a buy,” right? He’s now again saying, “Bitcoin’s a buy, and we’re going above this.” I don’t know. Certainly, has a lot of momentum. We may go up above the all-time high. But it’s a strong enough move up, traders will buy pullbacks, just like when it was going down, smart traders were selling rallies, although it was difficult to short Bitcoin.
Monday June 24, 2019: “Any update on Bitcoin?”
Part 2 duration: 5min 26sec
I’ve been looking at Bitcoin. To me, it’s kind of amusing. I’m not writing about it this weekend. If you’re watching Bitcoin, that’s an ETF version of it, and this is the real-time cash index for Bitcoin.
Up here, I said we’d break below 10,000. Down here, I said we’d fail at 10,000. I said we’d come down to about 7,500 at a minimum, but we may come all the way down here. First leg up, pullback, second leg up, pullback, third leg up. I suspect that we’re going to start to go sideways here. This could be a pullback from this. Sometimes the pullback goes below the bottom of the bull trend. But when it does, if you reverse up, you usually enter a Trading Range. So I think Bitcoin is going to be sideways for at least another month or two. Do we get back up here? Do we go up to a million, up to two million, like some people are saying? I don’t know.
Bitcoin’s structural problem
My fundamental problem with Bitcoin – I’ve mentioned this before – is the structure of it. It cannot be used for cash transaction. Realistically, it cannot compete with credit cards because the way the math works with Bitcoin, they can only do about 7 transactions a second. So if you have billions of people around the world using Bitcoin, a lot of seconds during the day, there probably will be more than 7 people making a transaction. There will probably be thousands of transactions. MasterCard, Visa, they can handle that. Bitcoin cannot.
So Bitcoin has a structural problem that – I don’t think there’s any solution to it, and if you fix it, then it’s no longer Bitcoin. It’s something else. So I think that is a big, big problem for Bitcoin, and that means it’s not really going to be used as digital currency.
If it’s not digital currency, then what is it? Then it’s a store of value – basically, a gold replacement. Gold has the advantage of having a second reason to own it, and that’s that it’s pretty. People like to own things that are gold. Bitcoin doesn’t have that. I’m not confident of Bitcoin’s future.
You can argue Wedge bull flag, one, two, three, testing that low. It looks like an Expanding Triangle – one, two, three. This is the daily chart. But I’m currently flat. To me, it looks like we’re probably going to bounce here, and we’re probably going to be in a range between today’s low and 10,000, maybe for the next month or two or three.
More on Jamie and Warren
But I’m not as hostile toward Bitcoin as some people like Jamie Dimon and Warren Buffett are. It’s actually fairly surprising to me how angry they are at Bitcoin, how condescending they are. I can understand Jamie Dimon wanting it to go away, because he’s a banker, and he deals with dollars, currencies. He doesn’t want everybody to take their dollars and put them into something else, like Bitcoin. He’s going to do whatever he can to make Bitcoin go away.
But Warren Buffett – I understand Warren Buffett’s argument. He prides himself in being simple and real. He wants to buy things that you can easily see and relate to, so he’ll buy See’s Candy or Geico insurance or Fruit of the Loom underwear or a whole bunch of small furniture stories around the country or a lot of Apple stock. So he buys things that you can see and touch and feel and like. He does not buy intangibles, especially things that you cannot describe in one sentence. Bitcoin, try describing it in one sentence and have somebody understand what you’re talking about. It’s not going to happen.
So anyway, I think Bitcoin has some fundamental problems, and I don’t believe that – I don’t think it has a great future. It may be around forever, and it may become a digital gold or a repository or money, especially since it seems like it’s a pretty good setup for criminals. So I think they’ll want to keep it around.
But it doesn’t make sense that it’s going to be the digital currency. The people who are doing it are not the powerful people on Wall Street. If there’s going to be a digital currency, it’s not going to come from Bitcoin. It’s going to come from Apple or Amazon or Google – in other words, Silicon Valley. Or it’s going to come from New York City. JPMorgan or Morgan Stanley or Goldman Sachs or something like that, from the banks, or from the tech sector. It’s not going to be this thing that kind of appears out of nowhere, nobody knows who created it, and it’s not transactional. I don’t see that Bitcoin has a future other than fun to talk about, fun to speculate. At this point, at least, I don’t see how it’ll be widely accepted, and I don’t see how it will attract a lot of dollars. But I could be wrong.
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thanks Al for the analysis.