Bitcoin refuses to capitulate to $5,000s – Short squeeze rally surges 10%

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Updated: 20 December 2019

Every investor that is long in a financial market loves a short squeeze, especially when it happens in the crypto world. Bitcoin and its altcoin brethren had already yielded nearly 10% of their combined market cap in a matter of days. Bears were roaring and salivating at the prospect of lower prices. The Bitcoin analyst community had shifted gears, as well, as the sound of “capitulation” was ringing in everyone’s ears. The “herd” had cast its vote. The shorts were in place. Time to sit back and reel in the rewards… NOT!

As it has done on a multitude of occasions just like this one, Bitcoin, for no apparent reason, thumbed its nose at the herd, did an about face, and hightailed it for higher ground. Shorts on the Bitfinex exchange disappeared like snow in the proverbial desert, as the appropriate squeeze rally ensued, boosting Bitcoin and its altcoin pals on a wave of buy orders. Bitcoin had peeked below $6,500, only to surge nearly $1,000. It finally settled in at $7,150, a full 10% markup in a twelve-hour period.

Bitcoin Chart 20122019

In this daily version of BTC pricing history provided by NewsBTC, Bitcoin had arrived at a crossroads – either continue down the dotted-diagonal line or bounce off either the lower diagonal support line or the red band designated by the low recorded back in November. The Relative Strength Index (RSI) was positioning for a the latter “bounce”, but the majority of analysts, the “herd” so to speak, had thrown their lot in with the skeptics, who were pointing further south.

By this point, the cacophony of voices screaming for $5,500 and even further below drowned out the saner of observers in Crypto-Land. It is an old adage in investing that when euphoria grips the masses, it is time to sell. The flipside of that statement is also true, when the “euphoria” is connected with shorting. If the “herd” believes their bet is a sure thing, it is almost a sure thing that they are wrong. In this case, Bitcoin obeyed the adage and punished the non-believers.

But what’s next? Bitcoin is once again languishing below the violet band on the above chart. There is now a “stair step” of resistance levels, set roughly $600 apart, which stand in the way of a hoped for Santa rally, preferably with $9,000 as the target. Before that objective can be achieved, Bitcoin must blow past $7,250, then $7,850, and finally $8,450 in quick succession and with ease. Does anyone remember “Sisyphus” from Greek Mythology? The poor fellow was punished by Zeus to push a boulder forever up a hill in Hades, only to have it slide back down each time he neared the peak.

The strange thing is that here we are 24 hours after the surge, and we still are without a valid reason for the sudden up-tick that brought the short squeeze into focus. Was it a reaction to global equity markets hitting new highs? Was it an un-filled “gap” on the CME futures exchange that had to be filled at $7,245? Was it a positive reaction to President Trump being impeached? Or, was it just Bitcoin doing its patented contrary move when everything seemed its bleakest?

The only new ideas today come from Forbes and analysts that claim they have a “fair value” model that purports that Bitcoin is now trading at its fair value. Enough said on that point, since these models have been far apart in their predictions, have not received wide support, and are more like the broken watch that finally recorded the right time.

In the case of Forbes, they noted that Coinshare had produced a new analysis that purported mining breakevens to be at $6,300. The last figure from Fundstrat was $7,400 or so. We are not sure why BTC prices should suddenly gravitate to this figure, but it makes for good copy. When halving occurs in 2020, does that mean that Bitcoin values will double over night?

There has been a theory that miners do suddenly “capitulate” when prices drop below their breakeven point, which can vary widely from the average since the cost and computing speeds can vary widely, as well. This theory has yet to be confirmed with “on-chain” data analysis, but what is known is that internal OTC desks at brokerage houses routinely buy large amounts of miner block awards by connecting them with their institutional clients – so much for miner capitulation theories.

Without more evidence, we will have to settle for speculation, or use the most “worn out’ cause in the books – a “Whale” was obviously splashing about and manipulating buy and sell dynamics in the market. Sounds about as plausible as the rest… stay tuned.