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Bitcoin weekly chart courtesy of StockCharts.Com annotations by Mish

Technically Precarious

• Bitcoin broke through support support at the 50-week moving average (50MA) which is now sloping down.
• The 50MA is now resistance, not support
• Typically, when the 50MA breaks prices decline to the 200MA which is leveling off.
• The 200MA is 22,000 very close to the 21,000 level where MSTR CEO Michael Saylor gets a margin call. 
• Other than the 200MA, current technical support is at the thin dotted line in the above chart, now broken to the downside. The next level of chart support is not until the 10,000 level. 

Margin Call 

I discussed the margin call possibility on May 8 in As Bitcoin Breaks Support, Bulls and Bears Pretend to Know the Unknowable

Here is a Tweet recap. 

MSTR CEO took out a loan to buy Bitcoin and gets a margin call around $21,000.

Saylor blew up his company once before. See my post for discussion. 

Now let's investigate fundamentals.

What Backs Bitcoin?

Fundamental Driver 

The fundamental driver for bitcoin is sentiment. It has no earnings and has failed in its mission as a currency. 

Rather, Bitcoin is held as a speculative asset and a a tool for fraud. In that regard it's been an amazing success.

Flight to Safety Theory 

Question About Shorting 

Regarding question number one: Just because something is a poor or speculative long does not make it a good short. Similarly, just because something is a speculative long does not mean one should be idiotic about it. Think Saylor. 

The most one can make without using leverage or short-term timing options is 100%. I would rather buy junior miners which can be 10 baggers on good drill results in a year. 

Yes, I realize Bitcoin was a phenomenal success, many times greater than 10 baggers. But that is history, not forward looking. 

Fundamentally, Bitcoin has never been tested with the Fed draining liquidity. That's a huge change. 

The question at hand is whether Bitcoin represents a good long in a liquidity draining environment, no more no less. 

The answer to question two is yes, of course. However, the question is irrelevant, in context, because it implies Bitcoin is a guaranteed winner. 

Regarding Ethereum 

Sentiment risk never goes away! This applies to every asset. 

Where Does Sentiment Lead?

If the overall desirability and willingness to hold Bitcoin drops, so will the price. 

That is an irrefutable statement of fact, yet believers persist.

What About Hash Rate?

"If hash rate continues to rise by orders of magnitude, so will production cost. Hint: The price of any commodity trends towards its production cost."

For starters, that is one hell of an IF. 

Let's now discuss the second sentence.

Bitcoin Price vs Hash Rate 

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Hash Rate from Blockchain Hash Rate. 

Hash Rate Reality

• Bitcoin peaked intraday at about $69,000 on November 10, 2021. 
• The price of Bitcoin has fallen to roughly $30,000 on May 26, 2022.
• Bitcoin has been falling for over 6 months with the hash rate generally rising the entire time.
• The hash rate rose from 162 to a peak of 228, yet the price of Bitcoin fell 57%.

Q: How does one explain this?
A: The overall desire to hold Bitcoin, not the hash rate, determines the price. 

Price is set at the margin, not by whales nor HODLers.

Bitcoin Projections

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People have been predicting Bitcoin would hit $1,000,000 for years, but that takes the cake in silliness. 

Where is Bitcoin Headed?

I do not pretend to know, even as others do. 

However, I am willing to look further at the technical and fundamental case.

Bitcoin Monthly Chart 

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Bitcoin monthly chart courtesy of StockCharts.Com annotations by Mish

Technically speaking, this chart is even worse than the top chart. There is a huge air pocket down to the $10,000 level if support breaks. 

Normally, I would expect some buyers to come in at the 200MA level but that also happens to be the Saylor margin level. 

If Saylor pledges more Bitcoin instead of meeting the margin call with dollars, there is a huge risk of a technical cascade fueled by margin calls. 

The next strong support is not $10,000 but the $3,000 to $4,000 level. 

Bearish Holding Pattern 

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A descending triangle is a bearish pattern. 

Perhaps it breaks up. Perhaps there is a head fake in the opposition direction of the longer term trend.

Real Time Answers

Q: Ethereum just started dumping hard. Who knows why?
A: Me 

Bitcoin is highly likely to follow. 

Fundamental and Technical Synopsis

• In every time frame daily or longer, the technical pattern for Bitcoin is bearish. 
• The Fed is raising interest rates.
• The Fed will soon engage in QT.
• The price of Bitcoin has fallen for months on end with the hash rate rising.
• Bitcoin has never been in a liquidity environment as harsh as the current one.
• If the overall desirability and willingness to hold Bitcoin drops, so will the price. 

If you truly believe that Bitcoin will replace the US dollar, you are more than a bit delusional. 

Let's repeat the key fact one more time, hoping that is finally sinks in: Sentiment matters. If the overall desirability and willingness to hold Bitcoin [ANYTHING] drops, so will the price. 

The bullish Bitcoin case currently rests 100% on belief that desirability to hold a hugely speculative asset will rise despite a massive ongoing liquidity drain by the Fed coupled with the end of free money stimulus from Congress that has now been spent.

But hey, it could happen. That sounds sarcastic, but it's also true. People believe they know the unknowable. 

So let's bet a company and a country on the chance! 

For further discussion of betting the company and country, please see El Salvador's bonds Sell for 40 Cents on the Dollar, What About Bitcoin City?