Trading Tip `The Wall´ - I Was Wrong

Last week, I made an analysis of the bitcoin price situation. My analysis noted that while the rumors of Wall Street price manipulation was most likely false, the fear was real. Despite that, the price did not break under $10,000. Because my inclination towards bitcoin is bullish (based on the the positive sentiment around the Lightning Network) my conclusion was that there was a chance that we had bottomed out and would resume a recovery towards $13,000-14,000 in the coming weeks. I was wrong.

Also read: Trading Tip `The Wall´ – Wall Street Price Manipulation? Go Long

I Was Wrong

As you’ve probably noticed, the price dropped as low as $7,540 (GDAX) yesterday. My long position from $11,012 on Bitmex got liquidated.

Long XBTUSD from $11012 on BitMEX. Timestamp for future reference. — Eric Wall (@ercwl) January 26, 2018

When I accepted the role as trading tip columnist on Bitcoin.com, I knew that there were going to be times when I would find myself in the situation of being wrong. It is not fun to be wrong, but that is a part of reality.

Here’s the story of how I was wrong

This is the graph I posted in my article on Jan 27. I was expecting a positive breakout from that consolidation period, and entered a long position.

I don’t just draw triangles on charts and expect to be able to predict the future. I paid close attention to this triangle because I noticed that a lot of traders were looking at this particular triangle. When many are observing the same pattern, it triggers a behavior as if the pattern itself really did carry significance.

24 hours later on Jan 28 things were looking good. Breakout.

Later that day, things started turning the other way. I began dreading a fakeout (a thing which happens so commonly that it even has a page on Investopedia).

On Jan 30, the breakout had fully retraced, and we even broke below the lower trend line. We also broke under $10,000. No matter if you cared about TA or not, things looked bearish to most people.

In retrospect, this is where I should have exited my position. Things clearly weren’t going as I had anticipated. But trading is not my full-time job. I work full-time as a cryptocurrency engineer, so this happened while I was at work.

The Tether News

Tether is the Achilles heel of the cryptocurrency market. It is hands-down the most infected story of the year. While I’ll save the my full commentary on the Tether-debacle for another time (spoiler: Ari Paul’s recent tweetstorm mirrors my own thoughts almost exactly), I think it is safe to say that there’s a widespread belief within the cryptocurrency community that Tether might have single-handedly inflated the entire cryptocurrency market during 2017. Anything tangentially negative news-related to Tether is bound to cause a market reaction.

This graph depicts the vertex of the triangle zoomed in.

When I read the news of the subpoena, I did not immediately jump to close my position. The news had caught me without warning, and selling the moment bad news hits the papers is how you end up selling the exact moment when everyone else is selling. My strategy is to buy the exact moment everyone else is selling.

This made the situation complex for several reasons.

I was already underwater on a long position from $11,012.

It is a bad time to sell at the publication of worrying headlines before getting the full story. A subpoena in and of itself is a warning sign, but does not inherently mean that there is any real issue. A later clarification may cause the price to recover instantaneously.

Despite there being a news story in the mainstream media about Tether, the price only dipped to around $9,500. That is not a very significant crash given the circumstances, so not a great time to buy either.

I chose to not exit my position until more information was available. Shortly after Bloomberg published the story, they updated their article to include the crucial piece of information that Tether had been subpoenaed on Dec 6, not last week, which made the story less worrying. That night, Bitfinex’s social account on reddit offered a pretty good explanation on what had happened, connecting the subpoena to the recent Tether hack. It was looking like a recovery was in the cards for bitcoin, but volumes were still very weak. Things were ominous.

The further down we dip from from our December high at $19,891, the more does the 2017 run-up resemble 2013, which was followed by a long bear market. In many people’s minds, the stage is set for yet another bear market to begin.

India banning cryptocurrencies

Then the “India is banning cryptocurrency” story broke loose. India’s finance minister Arun Jaitley made some comments during his budget speech in the Parliament on Feb 1, which Quartz interpreted as “the end of the road for cryptocurrencies in India” and that “the government will do everything to discontinue the use of bitcoin and other virtual currencies in India”.

While this was a misrepresentation of the actual comments (which only mentioned a crackdown on illegitimate activities), this story ended the last hope of a smooth recovery for the bitcoin price. I got liquidated at $8,300.

Looking ahead

I was trading in December 2013 just as I am in December 2017, and I find very few similarities between the outlook for bitcoin in these different time periods. The cryptocurrency space today is orders of magnitudes more mature than 2013. What is making me even more bullish is that mainstream speculators still seem to live under some kind of illusion that bitcoin is built on “stone-age technology that has failed to adapt” and avoid investing in bitcoin for this reason. I remain positive that the positive momentum building up around the Lightning Network can eventually serve to recapture some of that capital.

As for my trading, I mentioned in last week’s post that I had been hoping to get in some long positions in at ~$8k if my position from $11,012 got liquidated. Nothing fundamental has changed since I wrote that, and I remain more confident than ever that we are going to see a recovery to the $13,000-14,000 range, although it may take a bit more time to get there now than before. I’ve opened some larger, low-leverage positions from $8,500 which I am planning to hold long term. If you are planning to do that as well, I recommend the Bitmex futures contracts rather than the perpetual swaps as the futures contracts are completely free from rolling fees, and thus more suitable for long-term positions.

I was wrong. I was forcibly liquidated on BitMEX out of this position. I have opened a new, long-term long position from ~$8500 on the BitMEX June futures (XBTM18 @ $8899). Currently writing an article to explain this move, stay tuned. https://t.co/VVIwa7kFJ1 — Eric Wall (@ercwl) February 3, 2018

What are your thoughts on market manipulation? Let us know in the comment section below!

Images via Shutterstock, Twitter.

Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”