Sudden BTC dump, should I buy the dip?

in Project HOPE11 months ago

This post will be a rather short one compared to my other analyses. I just want to write something about the price dump that we are seeing right now (at the point of writing this post). I woke up to a little shock today as my price alerts were triggered. I have set BTC price alerts at $9.3k, $9.15k and $8.8k as I think they are all important levels for a retracement. Once again, BTC surprised me by slicing through all these levels to reach $8.1k.

BTC daily chart

The question I asked myself will naturally be, "should I buy the dip?". As usual, I look to history to see whether there was anything that fits the current profile. Just to recap,

  • We took a dive from $9.5k to $8.1k (about 15% loss) within an hour
  • We are in a rally that is attempting to break the longer-term downtrend.
  • On the daily chart, BTC surged from $6.7k to $10k (almost 50% gain) without any meaningful retracement in between.
  • On the weekly chart (below), BTC surged from $4.5k to $10k (120% gain) without any meaningful retracement in between.

BTC weekly chart

Looking back in history, a similar event happened on 17 May 2019,

  • BTC plunged from $7.8k to $6.6k (15.4% loss) within an hour or two.
  • It was in a rally attempting to break the longer-term downtrend.
  • On the daily chart, BTC surged from $5.1k to $8.3k (62% gain) without any meaningful retracement in between.
  • On the weekly chart (below), BTC surged from $3.6k to $8.8k (145% gain) without any meaningful retracement in between.

BTC hourly chart. Focusing on 17th May 2019

BTC daily chart. Focusing on 17th May 2019

BTC weekly chart. Weekly RSI levels circled in red

As you can see from the charts above, BTC went on to rally 111% in the coming weeks from the bottom of the flash dump. One key difference here is that the weekly RSI now is not in the overbought region, while on 17th May 2019, it was. So if history is of any guide and the RSI is of any use, we are seeing more strength in this rally than on the one in May 2019. Thus, we might see an even stronger upward move in the coming weeks.

It is also interesting to note that BTC did not go below the 100d SMA, 200d SMA and the 0.618 fib retracement level. These are a confluence of levels which will turn BTC bearish if broken. I will say if BTC breaks below the $8k - $7.8 region, I will turn short-term bearish.

So did I buy the dump? I did nibble a little bit. This flash dump is I think the usual trick leveraged exchanges use to liquidate long positions. I saw on Twitter that $107m worth of long contracts were liquidated on BitMex alone, more liquidation data can be found here. Such flash moves to liquidate leveraged traders happen all the time and I am not surprised.

I strongly discouraged leveraging crypto trades and I do not do leveraged crypto trades. If you do, I think it is important to hold a somewhat contrarian view and be on the opposite end of that the herd is doing. It is also key to only risk what you afford to lose.

Again, I am just sharing my thought process and please do not take it as financial advice. Due diligence and research are still required for your own investment. Did you buy the dip or are you waiting for further downside? Let me know in the comments section.


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@culgin yes it is the best time to buy the bitcoin as less bitcoin will be available as 30% miners stopped mining.

 11 months ago 

Dear @culgin

Thanks for sharing your thoughts. I've been wondering a lot lately what is the chance, that BTC will drop below 6k.

Thus, we might see an even stronger upward move in the coming weeks.

Surely I would love to see that. Currently central banks are very busy trying to copy with unfolding crisis, so perhaps there will be less hostile presure from central banks towards crypto industry. It would allow this industry to move forward a lot.

ps. after all your post wasn't really very short ;P
Yours, piotr

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