Unpopular Opinion: The Bitcoin Rally Is on Its Last Leg

I haven't heard a bearish remark about bitcoin, or a bullish comment on the U.S. dollar in weeks. Investors and speculators are clamoring for any asset that isn't the greenback without regard to price or risk. We saw something similar in March 2020, but the actions were reversed; traders were fervently selling any asset they could find to hold cash (the dollar). Are we seeing the reverse of the March 2020 inflection point? The charts and sentiment readings suggest the cash is trash mentality might be running on fumes. If so, things will look significantly different as we get deeper into 2021 than they do today. I wouldn't expect to see risk assets come crashing down to 2020 lows; let's face it, those lows were outlandish and will probably never be seen again in some markets. As a reminder, I am referring to the S&P 500 near 2000, oil under $10 (and on a fluke a few contracts traded in negative territory), etc. Nevertheless, the speculative froth is reaching ridiculous heights. And perhaps the most obvious display of this is the parabolic bitcoin frenzy. Bitcoin can be traded via cryptocurrency brokerages, but to be honest, such operations aren't properly regulated and like FOREX brokerages its clients are faced with counterparty risk. This means traders with profitable trades might not be able to get their money out of the account if the brokerage becomes insolvent (look it up, it can and does happen). There are also stories of hacking and theft. Thus, if you are looking to trade bitcoin and have significant capital to gamble, it is probably worth looking at the futures market as the vehicle of choice. The CME Group offers a bitcoin futures contract that expires monthly. As with any futures product, the exchange guarantees the transaction (unlike cryptocurrency brokerages). Of course, there are also issues with futures brokerages properly segregating client funds that could interfere with this process, but such issues are infrequent. If you want to learn more, ping me and I will explain (it isn't something that can be given justice in a quick write-up). The challenge with the bitcoin futures contract is its size; it is massive at five coins. This means a trader makes or loses $5,000 per $1,000 in price change of the coin. In other words, with bitcoin at $42,000 this contract is worth roughly $210,000! The margin required to trade it is hefty at $74,000. Clearly, it is not created for smaller traders. Source: QST Back to bitcoin, picking a top in a runaway bull is clearly a roll of the dice. But we aren't just taking unfounded stabs at the idea of a reversal. There are obvious technical factors such as the Relative Strength Index (RSI) reaching 90 on a weekly chart and the last two weekly price bars being above the upper Bollinger Band (meaning prices have spent the last two weeks near the black swan tip of the bell curve). This is a nearly unheard of chart pattern. We have also noticed that gold and bitcoin generally follow each other but when the trends reverse it usually starts with gold then the price action bleeds into bitcoin. With gold failing to break resistance this week and the U.S. dollar trying to hold support, the risk of being long and wrong in bitcoin is real. According to sentiment readings, only about 20% of market participants are bullish on the greenback, which is usually a sign of an overcrowded opinion. What would risk assets, particularly bitcoin, look like if the dollar rallied?

Unpopular Opinion: The Bitcoin Rally Is on Its Last Leg

The risk of being long and wrong in the cryptocurrency is real.

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