Over the past few weeks we have seen a Bitcoin rally into the news that the authoritarian leader of El Salvador would make Bitcoin a national currency, along with the US dollar, forcing businesses inside his country to take Bitcoin even if they don’t want to. It’s going to be a nightmare for many of them and a loss of choice and freedom for them too, but what is important for markets is that traders tend to buy into news ahead of time and then sell it when it comes out.
That pattern plays out over and over in markets and is exactly what has happened with Bitcoin as you can see from the chart.
It isn’t a coincidence that Bitcoin has dumped just after the El Salvador news became an official event.
This Bitcoin rally that began in July and peaked the other day took it right up into 50,000 resistance, where it topped out again. That 50,000 level acted as major support from March to June and now is major resistance for it. Look for Bitcoin to now go back down towards the 30,000 – 35,000 over the course of the next few months.
This sets up a bearish situation for crypto related stocks and for Coinbase (NASDAQ: COIN), in particular, as it is one of the top 100 stocks owned among Robinhood traders. That means a lot of people are in it that are likely to become sellers if it falls on them.
COIN stock has been lagging the S&P 500 and Nasdaq, acting like a complete millstone for shareholders since it went public in an IPO. It also has been lagging Bitcoin itself!
It’s setup, therefore, to really dump if Bitcoin does go down, because stocks that lag the market and their own sector tend to collapse during simple corrections. I think now one could short sell COIN if one wants to profit from the next crypto decline.
-Mike
