A couple weeks ago when I went out to San Francisco practically every tech executive I spoke to told me that the whole Cryptocurrency edifice. It’s a con, I think that’s a little too extreme and obviously it’s a lot easier to criticize something when the prices already collapsed. My takes a little different.
I see all these cryptocurrencies as textbook speculative assets. There are few who borrowed massive amounts of money, tons of people bought this stuff on margin. So, it’s only natural that we get a crypto crash. Once the Fed started raising interest rates kind of cut and dried, it’s been crushed along with every other speculative asset, especially the recent IPOs and the post SPAC stocks.
Now the crypto evangelists loved the claim that these coins were a hedge against inflation like digital gold, but in retrospect the opposite seems to be the case when inflation was low in interest rates when you’re zero. We had the mother of all crypto booms once the Fed started tightening, that fell apart.
Hey, by the way the same darn thing happened the last time Jay Powell cracked down on inflation with a steady series of rate hikes back in 2018. But other than that, crypto doesn’t have much connection to anything. It’s not like you’re buying part of a company when you pick up some Bitcoin or Ethereum, there are no sales nowhere, no earnings, no cashflow, nothing, which makes it very hard to figure out what, when the pain might be over.
You got nothing to fall back one, which means that the clients can be truly horrific. That’s why we like to fall back on the charts because technical analysis is really the only thing with much predictive power when it comes to cryptocurrencies. That’s not a good thing from my perspective.
I prefer to deal with real enterprises, but it’s the best we got. So tonight, we’re going off the charts with the help of Tom DeMark and his team at the DeMARK Analytics whose work you can follow at www.Symbolik.com and that’s S-M-Y-B-O-L-I-K dot com.
DeMark’s a religion, everybody knows everyone knows him in the business. He and his team have a tremendous track record when it comes to timing the market. One that goes back decades. More importantly, they’re experts at identifying both tops and bottoms in crypto. With that in mind. Let’s talk about Bitcoin. DeMark points out that the only thing you can really work off with crypto are basic supply and demand figures and market sentiment because as I said before, there’s not much in the way of fundamentals for crypto.
That’s why [Tom] DeMark’s timing and models have been so useful at predicting key inflection points in these digital tulips back in 2018 during the last crypto crash. [Tom] DeMark got an internal request from a client to apply his timing models to Bitcoin. Once he applied them, the results were stunning.
Look at the action in Bitcoin from October of 2017 through June of 2020. DeMark has a 13 step buy and sell countdown that helps them identify potential highs and lows you get a certain number of sessions going in the same direction and sooner or later the buying or selling pressure exhausts itself.
And that’s how these countdowns work. Although they’re a bit more complicated than that in practice. But the important point is that they’ve done a tremendous job of identifying tops and bottoms in Bitcoin. A lot of people like to claim that technical analysis is like astrology. Hey, but if astrology were this reliable, I would have been checking my horoscope every single day.
Now, this is the next chart the 13, 13, 13. Now look at this, you look at the more recent data from June of 2020. Alright, pretty clear through today, DeMark’s 13 countdowns have coincided with the last two peaks in Bitcoin and the last bottom. More important, we’ve got another 13 buy countdown right here.
So is it time to bet on a temporary Bitcoin bounce as you would seen if you look at these charts. Well, let’s zoom in on the more recent action with the daily chart of Bitcoin from April of last year through today. Ever since the last leg, latest leg of this decline started in March.
The breakdown from 48,000. The DeMARK indicators have remained silent. There were zero signs of an impending bottom on the way down. In fact, from late March where he got a powerful sell signal DeMark’s downside price projection for Bitcoin was 18,004 and that represents a 38.2%-point retracement of the previous move and important Fibonacci level where securities often find a floor of support.
However, Bitcoin actually hit that 18,418 level over the weekend. Where it seemed to find some temporary support. It also recorded a buy Countdown 13 on Saturday, which is Denmark’s bottom signal. The problem is, we’ve never seen a Bitcoin bottom on the weekend before. So it’s harder for technicians to break where it might be headed because there’s, there’s really no good precedent here.
The other complication since 2020 Bitcoins never had a downside retracement of more than 50% on a closing basis. Unfortunately, we burst through that 50% level months ago at its lows Saturday. The darn thing was down 64% from a few more times more like 75% from its all-time peak last November.
According to DeMark, when you get a decline this ugly and this is the most important takeaway of this whole piece, you get one this ugly. It often does structural damage to the asset in question. What’s that mean? Simple if you’re thinking long term Demark says that could take many years for Bitcoin to come near its old highs, maybe even decades.
It’s possible we never see them again. When DeMark talks about structural damage, that means people giving up on the whole crypto class, they’ve had it. Structural damage is when nearly every executive I talked to in Silicon Valley says the cryptocurrencies are a travesty of a mockery of a sham.
Securities don’t rally without buyers and so many people have been burned here that they know it’ll be tough for even the most ardent crypto evangelist to lure in new money. That said, even if the old highs are out of the question anytime soon, that doesn’t mean Bitcoin can’t bounce. DeMark could easily see a recovery to the low 40,000s in the next few months.
That’s a nice move. In other words, he thinks you’ve got a real chance to get out at higher prices in the not-too-distant future that may be worth taking. Of course, he’s got some short-term concerns too.
Over the past few weeks, Bitcoin had an unprecedented 12 straight down closes.
It’s unbelievable. And I often for such an extent. So, DeMark says, you’ll get a short term rally like we had this weekend followed by a lower close so far. So good. If that happens again, that’s then today’s roughly 4% decline could be the beginning of a longer short term move lower.
So, in other words, down here, after today’s hit to mark thinks Bitcoin has gone into severely oversold territory, he expected to make a lower low than we saw on Saturday, at which point it will have a chance for more sustained rebound. So, we should go through that 17,000 level very daunting.
If you own this, the bottom line now, the charts as interpreted by Tom Demark suggest Bitcoin could have a nice relief rally over the next few months. Even if he doesn’t see it revisiting its old highs for years or even decades or maybe never. Now, I can’t count on buying crypto here. But if you still own some here and you want, get out, I’m betting that from this. After another dip down, you might get a better price to get out. Stick with Cramer coming up on Mad Money.
© 2022 CNBC LLC. All Rights Reserved. A Division of NBCUniversal