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Bitcoin May Plunge in Q4 Due to a Tax-Induced Selling Frenzy

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  • Bitcoin’s price action as of late has done little to offer investors with any tangible insights into where it may trend next
  • Analysts have been largely noting that the cryptocurrency’s outlook is being dimmed by turbulence within the stock market, which may persist until after the elections
  • Many traders do believe that the rest of Q4 will be a bullish month for BTC, as this may be when it can decouple from the stock market and garner some independent momentum
  • One analyst explained that he believes downside is imminent in the quarter ahead, noting that whales will have to cash out some of their crypto to cover taxes, which could spark a selloff

Bitcoin and the entire crypto market have lacked momentum throughout the past few days and weeks.

This has largely come about due to the turbulence within the stock market, with bulls and bears being unable to spark any short-term trends as the stock market consolidates.

This sideways trading pattern may not last for too much longer. One analyst noted that BTC might see a selloff induced by whales selling their crypto to cover taxes.

He notes that this sentiment is being reflected while looking towards options market makers.

Bitcoin Lacks Momentum as Stock Market Continues Consolidating 

The stock market hasn’t been able to form any clear trend as of late, with investors widely awaiting more insights into a phase 2 stimulus package that has yet to be agreed upon by Congress and the White House.

As the election also draws closer, investors are potentially awaiting its results before opening fresh positions.

This has caused Bitcoin to see a similar bout of lackluster price action. Both bulls and bears have largely reached an impasse and have been unable to spark any short-term trend.

At the time of writing, Bitcoin is trading up marginally at its current price of $11,400. This is around the price at which it has been trading throughout the past week.

Analyst: BTC Likely to See Tax-Induced Selloff Later in Q4

One analyst offered a bearish outlook on Bitcoin and the crypto market in Q4, noting that he expects it to see a selloff induced by whales taking out money to cover taxes.

“Its hard to for me to imagine a Q4 pump mega. All whales selling in order to prep to tax. Unless you’re telling me that the majority of crypto are in tax havens such as SG and HK. Sentiments shared amongst options market makers who are pricing monthly IV at 30%+,” he explained.

Image Courtesy of Theta Seek.

If the options market makers prove to be correct, then it could be a turbulent coming few months for Bitcoin.

Featured image from Unsplash.
Charts from TradingView.





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3 things traders are saying about Bitcoin and the state of the bull market

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Bitcoin’s (BTC) dip below $29,000 on June 22 rocked the markets a handful of analysts to call for a potential drop below $20,000. 

Many traders on crypto Twitter were focused on the formation of a death cross on the Bitcoin chart as an omen for another potential drop in the price but analysts with a more contrarian point of view look at this chart pattern as a signal that it is time to buy the dip. 

Three reasons why some traders still see a bull case for Bitcoin include the appearance of the “spring” stage of the Wyckoff accumulation model, steady buying by long-term holders and the formation of a bear trap at the golden ratio that is similar to moves seen during previous bull runs.

The Wyckoff model says spring has arrived

The Wyckoff accumulation model has been all the rage amongst cryptocurrency analysts over the past month as the price action for Bitcoin has been tracking the pattern relatively closely since the May 19 sell-off.

As seen in the tweet above, Bitcoin’s plunge below $29,000 and the subsequent recovery above $32,000 has some analysts suggesting that the “spring test” seen in phase C of the Wyckoff pattern has been fulfilled. This would indicate that the bottom is in for the current correction and now begins the choppy climb higher.

If this turns out to be true, BTC would enter phase D, also known as the “markup phase” where a new uptrend is established and “pullbacks to new support offer buying opportunities” that are often seen as opportunities to buy the dip.

Related: Bitcoin drops below $36K as century-old financial model predicts big BTC crash

In phase D a breakout to new highs is expected as the cycle completes and prepares to potentially begin again once the move higher is exhausted.

Long term holders are still bullish

Another bullish sign cited by analysts is the steady accumulation by long-term holders.

The Bitcoin long-term net holder position shows that investors actually began to reaccumulate back in late April and they began to significantly increase their activity in May as the price fell into the $30,000 to $40,000. On-chain data shows that these investors have continued to buy into the most recent dip.

This activity suggests that more experienced crypto traders are familiar with Bitcoin’s market cycles and view the current range as a good level to open long positions when fear is high and the sentiment is low. 

The biggest rewards go to those who take the risk to buy an asset amid plunging prices and sentiment, and these are the types of situations where the contrarian traders thriv.

A bear trap lurks at the golden ratio

The third scenario some analysts are focusing on suggests that the current price movements have set up a bear trap that echoes a move seen during the last cycle which involves a pullback to the 1.618 golden ratio extension level which will then be followed by a breakout to new highs.

From this perspective, the market is currently in the awareness phase of the four psychological stages of asset bubbles. After the bear trap occurs, Bitcoin will enter the mania phase where widespread media coverage attracts the attention of new market participants who then chase the price to ever-increasing heights “based on the delusion that the asset will keep going up, forever.”

Previous calls for the possibility of Bitcoin reaching a price of $200,000 by the third or fourth quarter of 2021 by veteran trader Peter Brandt, who was far from alone in predicting its value to surpass the $100,000 mark this year, would suggest that the long-expected blow-off top is yet to come.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.