Hi all,
I did take my time reading through the rules of this subreddit, and concluded that this would be a welcome post for the group here.
I am an individual that has been fixated on analyzing and understanding Bitcoin over the last 6-7 years now. My track record has included suggesting a buy zone / long entry at 16,500 December 2022, with a target price of 65,000. As you can imagine at that time, I was laughed at quite a bit, considering at that point in time Bitcoin had broken and retested a major Bearish Pennant pattern on the daily time frame.
I’ve come to learn that Bitcoin moves by not only liquidity, but specifically liquidity from stop loss orders - due to the dominance of high leverage usage on the exchange platforms people trade futures on.
I have laid out my anticipated scenario here for you in a very clean chart. The flash crash scenario moves as follows;
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62,200 to 35,000
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35,000 slight retracement up to 43,000 zone
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43,000 to 7,000 - 10,000
This however is not a DOOM scenario for Bitcoin, it would be a liquidity sweep prior to a Bull Market on BTC / equities spanning out 1-2 years and likely resulting in a 120k to 240k BTC value.
While many argue that a black swan event is required to move the market in such an extreme manner, I disagree.
I propose to you that crypto is the trading market that deviates from the logical restrictions we give to price flexibility in Equities and Forex markets. Crypto is (A) a weekend operated market, (B) price movement is dominated by high leveraged futures positions, and (C) exchanges and market makers benefit directly from traders liquidations and fees paid when opening positions. We can deduce from these three points that there is more interest against traders succeeding by the very platforms they trade on than any other market, and furthermore, an interest in sudden, fast, and extreme movements aimed to liquidate inattentive traders. We can also understand that being a weekend market, untied from the associations to equities and forex hours, it is an animal of its own intentions. Lastly, I will lay out further information in detail about the hidden power of futures stop losses driving the price of Bitcoin in fast and extreme movements, which is the mechanic I propose makes this trade possible and DOES NOT rely on any sort of black swan event to occur.
I’ve spent a lot of time on this theory, and while I can write and write essays in this post, I will update in the comments as we progress as well as answer any questions.
Understand this is not a matter of having a dislike for Bitcoin or cryptocurrency, I truly have no emotional attachment to what I trade. I am of the opinion that the liquid value of Bitcoin has no strong correlation to its value as a technology and its function as an asset. If this was to occur, I foresee it happening very quickly, and equally quickly returning to its $50,000 + price and climbing over the next years to upwards of $150k.
I’d like to encourage keeping comments and discussion on the basis of respect of understanding price movement of Bitcoin (and relatively all cryptocurrencies) - and refrain from making this a personalized discussion of taking any sides. In other words, I am an analyst interested in price movement. Price moves up and down always, not one or the other.
The last information I will leave on the main post is a summary of how I have come to understanding and trading Bitcoin over the last 6 years of trial and experimenting.
Here are key points of the way I approach Bitcoin, that I feel are unique and worth mentioning.
- The vast majority of bitcoins movement is caused by stop loss orders cascading one into the next, and performing pre-determined chain reactions as they are filled. The market is dominated by futures trading; and this has a major effect on the spot price of Bitcoin. A trader using $100 for a long at 100x is leaving in the form of his stop loss; a $10,000 limit sell order that fills ONLY if price crosses over / below. Unique to limit orders that fill automatically if price is at a premium or discount, stop losses stay in tact until price passes them. Retail traders and those placing orders are only crawling the market along until it begins hitting those stop losses. That’s why bitcoin volatility comes at odd times - the reality is, it’s not caused by human engagement. It’s caused by the decisions traders have made in the past.
- Exchanges and market makers profit off of liquidation fees and interest on leverage. Stop loss placement is protected information for a reason; the exchanges and market markets communicate this information, to allow themselves to benefit and you to commit more money to the market.
- The Bitcoin chart works on trendlines that cut through - this is often when we see as price consolidation. Bitcoin easily weaves inside and outside of these trendlines due to stop losses sending price to fill the order chains. The invalidations are simply a phenomenon of futures trading prominence. Eventually, one side catches just like a normal trendline - in an abnormal relationship because price is never neatly contained inside or outside - that’s what makes bitcoin prediction so difficult.
- DXY is still the best predictor of Bitcoin volatility and as to which direction listed in point 3 will execute. Especially when DXY is approaching a major pivot or direction change, Bitcoin reacts very well with moves to liquidate the opposite side before DXY has a lengthy downward or upward movement (Bitcoin generally moves in opposition).
- Market manipulation is subtle and occurs with consolidation. Price is contained and controlled, by MM placing counter orders to balance the price moving too far into a particular direction. The consolidation periods attract futures positions for their stop loss orders - and that’s the function that makes moving Bitcoin in the favour of the exchanges / MM in a way that benefits them and also in a way that’s legitimate - as it’s in fact caused by traders own choices. The counter balancing / controlled consolidation is a practice that on paper “prevents manipulation” and “increases liquidity to reduce volatility”. Quite clever.
- Since stop loss orders are limits placed in the chart that don’t fill automatically if price is above or below - we can analyze the open gaps on the chart along with consolidation periods to develop a good sense of the stop loss orders in the chart and where price is likely to move.
- Stop Loss orders helps us to predict not only direction, but also the speed and distance Bitcoin will move. The more stop losses; the greater the speed of the compounding movement and cascading effects. The longer the consolidation periods, and the larger the gaps are that price has not recovered; the more stop losses are in place. In other words, the movement of Bitcoin is predetermined and thought of like a chain of explosives that are fused together. As soon as that first stop loss triggers, the more exponentially the speed increases as the orders are already in place - and hence why we see many large wicks in Bitcoin.
- The fiat conversion of Bitcoin is very fluid and not a firm metric for Bitcoins health. Liquidity can move in and out of the balloon of Bitcoin extremely fast. The finite quantity of Bitcoin and its scarcity and quantity, is not relative to the fiat conversion. One bitcoin is one bitcoin - whether it is at $10 or $100,000. The fiat evaluation of Bitcoin is more-so determined by the “online casino” of sorts that takes place inside the container of Bitcoin; giving us a volatile, moving fiat conversion that ultimately is not relative to the value of Bitcoin as it’s own entity - it’s only relative if Bitcoin is converted back into fiat.
- There are several hard limitations that stock and equities share that Bitcoin does not. Company share values are limited by the anchors they have in the real world - IE employees and wages, product sales, infrastructure, supply / demand. The evaluation of these companies is not nearly as fluid as Bitcoin for these reasons. The companies are directly related and tied to the system of the economy. Bitcoin, on the other hand, does not have these reality anchors that provide floors and ceilings to price movement.
- There is a degree of human intentionality behind Bitcoins chart and movement. In other words, more so than any other asset, its price projection is planned by human design. The market is funded upon liquidity from retail traders, predominantly in futures markets. The business of exchange leveraging is astronomical, and Market Makers control the great majority of liquidity via their automated systems and order placement services. Join that information with the profit structure and beneficiaries of our liquidations; and we can base a logical conclusion that there is a sole vested interest in the way Bitcoin’s price moves. That is; in favour of liquidating the common Joe and Jane. This allows us a unique advantage to be able to strategize with a business-focused mindset, more so that any other asset class. This is largely due to the lack of regulations and available information with international crypto exchange platforms and Market Makers.
