Bitcoin triangle formation keeps extending, despite major drop and return

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Updated: 20 September 2019

Depending upon your perspective, you might have missed the Bitcoin fireworks during the late hours Wednesday. Bitcoin looked as if it were going to be another routine day of ranging about $10,300, when suddenly – BAM! From $10,150, the trapdoor opened wide, and the world’s favorite digital asset went careening down a dark cavern, until it reached $9,600. Trading robots kicked into high gear, directing sell orders from anyone that was concerned about their long position in the market. Yes, it was a “long squeeze”.

Bitcoin USD Chart

In case you are curious about what happened next, the “dead cat” did bounce. This old metaphor from Wall Street did prevail. BTC bounced back to just under $9,800, and then gradually through today, it totally recovered back to previous support levels. At this writing, Bitcoin is catching its breath around $10,210. The net result is that the rather beautiful triangle pattern depicted in the above chart has been extended a bit more into the future, with another red blemish on its daily record, as happened at August’s end.

Did someone tug on Superman’s cape? A group of investors or traders did obviously “flinch” big time. The “reign of terror” was over in a flash, but this behavior was not emblematic of a typical “flash crash”. Analysts began searching for answers. Skew Markets, a crypto analytics firm, provided the first clues by discovering that investors that were “long” Bitcoin had turned white as a ghost and dumped, by their count, roughly $154.5 million of long positions in a matter of minutes.

There was nothing in the news that could be viewed as the “trigger”. The discussion about VanEck withdrawing its BTC ETF application from the SEC had come and gone, creating hardly a ripple in price behavior. Omkar Godbole over at Coindesk adroitly noted that the 50- and 100-day moving averages are approaching a “bear cross”, their difference having narrowed to barely $12. This type of cross is a lagging indicator, and even he admits that: “Bearish crossovers have limited predictive powers at best and often end up trapping sellers on the wrong side of the market.”

So, did people get scared for no reason, or are we to jump to another conclusion that the activity in the market had something to do with the Bakkt launch on next Monday? In order to “play” in the futures contract exchange, which incidentally settles in Bitcoin, an investor must already have BTC on deposit in the Bakkt Warehouse. Are we to assume that a few institutional players want into the Bakkt exchange, but they have also waited until the last minute to acquire the necessary “in kind” deposits?

There is one trading strategy that large players, the ones that throw around trades at the six figure level, employ to enter a large position in the market, without inflating the current price, which a large buy order might do. If you have ever had your stop-loss order hunted down before a big move up in the market, then you would have become acquainted with this type of gambit, but, at the time, you more than likely thought your broker had stopped you out and screamed a few choice words at your computer.

Bankers and hedge fund managers can always “dribble in” their buy orders, a little bit at a time, but many go another route. First, you place a large enough sell order down that will shock weak-handed traders into parting with their positions. Then you rush in like a Great White Shark and gobble up every sell order that you can. If you perform as planned, then your average entry price may actually be below previous market levels. In cases like this one, the market quickly returns to where it was. Since there were no drivers of a fundamental nature wreaking havoc on the market, but for an institutional investor barging his way in, the market will typically reset and move on.

This subtle form of price manipulation is not illegal. We might begin seeing more trade gambits like this one from the “Big Boys” and the “Whales”, as the Bitcoin market heats up. If serious demand from the institutional sector is truly waiting on the sidelines to participate in a big way in Bitcoin, then prices will surely escalate. Expect more volatility, not less in the days and weeks ahead.