TRI's new school term starts May 10th! Click Here to join
Registration closes: days, hours, minutes, and seconds

Bitcoin, Coinbase and Fundamental Drivers

Coinbase is going public this week on Wednesday the 14th and the hype machine is running on all cylinders. They reported some pretty stunning earnings last week and people are certainly taking notice. Of course the current crypto bull run is fueling all of this with BTC up near all-time highs while DeFi and NFTs are capturing enough media attention to have your grandma asking about them. We should be in for an exciting week to be sure so get ready. 

Coinbase is already a company with a big impact on crypto. Their stock $COIN will become a proxy for the space as well as another way for traditional investors to get exposure to crypto without directly owning any. Clearly this is a big fundamental driver for the crypto space. As Brian teaches at TRI, fundamentals can have an effect on price action and at certain times can dominate the story and render technical analysis useless. One could argue that we may be in such an environment right now. BTC has been enjoying a parabolic advance for some time and I think there is some amount of market hysteria present. The trendiness of NFTs alone is a good sign we’re getting a bit frothy. 

It’s impossible to know the future of price action but as traders we must be mindful that there is a major fundamental event playing out that will have an effect on price action in the short term. In general, trading a market heading into a fundamental event like this can be tricky. Because our technical analysis tools have the potential of being overridden in these situations, it’s also possible that our technical setups may not perform in the manner we’re used to. If you’re not an experienced trader, it’s probably best to sit on your hands and wait for this to blow over. Hopefully as an investor you are already working with a plan that governs your decision making and this event should not change that. 

If you are actively trading and want to capitalize on this event you may want to consider whether this is likely to be a “buy the rumor, sell the news” event or vice versa. Usually an event culminates in one or the other and determining this will help give you a clearer picture. Unfortunately predictions are worthless and often wrong so I certainly won’t bother with calling tops or bottoms here, but I will try and take everything into account and compare that with my technical setups to get a handle on what direction I’m leaning towards.

First I look at the fundamental story and ask myself is it generally bullish or bearish? I think all current fundamental drivers are overall bullish for crypto and I’m not really seeing any bearish catalysts. I see Coinbase going public as bullish for the space because it pushes crypto further into mainstream acceptance and more of the public will enter the space because of this. Bitcoin is also still enjoying positive benefits from big players like MicroStrategy continuing to step in and add the asset to their balance sheet. More importantly I see the anti-fiat trade still working as people continually lose faith in the US Dollar and other government currencies. The money printer has not stopped so why would people’s faith in fiat be coming back? Bitcoin has somewhat replaced gold this cycle and I think it will continually be a place people go to hide out from cash. 

These three things add up to a generally positive outlook for Bitcoin and they speak to this run up continuing for the time being. That said, I have to remind myself that we are in a late stage of the rally and I have to consider that a big newsworthy IPO (IDO in this case) during a period of market frothiness is a perfect storm to mark a top in the cycle. Offerings like this have a tendency to suck the public in at high prices while the smart money exits. It’s not uncommon for an IPO to come off in price once the dust settles. If this becomes a “sell the news” event then we would expect the public to come in hard as price runs up and be left holding the bag for a while as the excitement wears off. An IDO is a direct offering where the current owners convert their ownership to shares and sell them to the public. Coinbase is not doing this to raise capital, it’s by nature an exit strategy available to early investors and we should be expecting some of them to be selling. Regardless of my general bullishness, I have to at least consider that this could trigger a sell off that could drag Bitcoin down with it. 

From a technical perspective, Bitcoin is currently range bound and hovering around $60k. It’s up near it’s recent all-time and after a 2nd attempt this weekend it’s still unable to capture that level. On this Coinbase BTC chart I’ve drawn Bull/Bear Battlelines at the high of $61,788 and the last key pivot low at $50,305. This is the current trading range. If price can’t push through the top of the range in earnest then it’s likely it will begin to explore lower. If that does happen the $50,305 area is really important to watch because if price loses that level and breaks the range we will be looking at a large market structure M Top. At the moment today’s candle is a Doji suggesting indecision about direction. 

It’s logical that traders would be interested in shorting here at the top of the range. Price has tried twice now to test the old highs and breakout and each attempt ran into too much resistance. New longs at this level are dangerous and it would be better to just wait for price to breakout to new highs and then hunt your longs on pullbacks and consolidations once you have confirmation that the bull is back on. If price can’t make new highs at all then my next level of interest for hunting longs would be at the bottom of the range, assuming the $50,300 level holds. If that area can hold I would see that as an acceptable location to hunt longs. A loss of that level would suggest the top might be in. 

In conclusion

I’m leaning big picture bullish overall but weary of the potential for this event to create some selling. I don’t trade IPOs in general so I will not be looking at $COIN until later on down the road but I will be watching closely how it affects BTC. If Bitcoin heads into Wednesday still unable to make a new high then I will be expecting a “sell the news” event and hunting shorts for a move back to the bottom of the range. If we do break to new highs and can consolidate above the old high then this is a “buy the news” event and I will be looking at longs for a move higher. If a bigger sell off is triggered then I will be looking for long opportunities at the bottom of the range above $50k with hopes that level holds and does not fail to create a larger topping pattern. Lastly, it’s always a possibility that this is a non-event and nothing really happens. Only time will tell...

As always, this is just my personal opinion and not financial advice. Consult with your financial professional before making any investment decisions on any of the topics discussed. And as always, trade dem setups!!! 

-Kevin

BTC Daily Chart on Coinbase