Cryptocurrency: August 1st Bitcoin Fork and the Importance of Understanding Sentiment

Sentiment Guides Market Direction

Many Technical Analysts believe only in how the chart guides us in understanding the market direction. Fundamentalists focus on the underlying asset and suggestions of its value based on news and market events. Both are important and I plan on going over where I use both with my investments, but for now Sentiment is a large part of the current tizzy.

Sentiment is very simply collective feelings or crowd psychology on the current state of an asset or an industry. Not very technical is that? But it's important to take the temperature of the market by reading articles, checking social media, and scoping out the forums.

So if 100% of us believe Crypto is going UP tomorrow, and we use our wallets to prove it, then by God, it's going up because we're all buying. If 100% believe it's going to zero tomorrow, and we use the power of our crypto wallets, it will.

Now, Sentiment is not just about a single news item. Though, news can reinforce an existing direction or influence a reversal of the current trend. Take a couple of recent examples.

Reversal of Trend: Mark Cuban Tweets Bitcoin is a Bubble

Mark Cuban, billionaire investor who made his fortune during the dotcom boom, is credited for Bitcoin dropping about 10% in a single day, during its bull run on June 6th. I would not give complete credit to Cuban, as there were other news items floating around during that time, including other news sources stating Bitcoin's price was being pushed beyond its limits, but we can see how quickly Bitcoin's price took a dive on the day of said Tweet.

Sentiment was bullish, but becoming incredibly cautious. Within 5 days of this Tweet, Bitcoin hit $3000 and started the current downward trend we're in.

Could the reversal of our uptrend be because of Cuban's Tweet? No, but the inner voice in all of us was starting to wonder how far this thing could go. He just digitized it for us to read and smart money began cashing out around this time.

Sources:
https://twitter.com/mcuban/status/872115728962510849
http://fortune.com/2017/06/07/mark-cuban-twitter-bitcoin/

Acceleration of Trend: 4Chan Spreads Rumor of Ethereum Founder's Death

“Vitalik Buterin confirmed dead. Insiders unloading ETH" - 4Chan Forum Post

June 25th, Ether was already struggling to maintain its upward trajectory due to a number of reasons, including a 40x rise from its price point in January, scaling issues due to the demand for ETH for the recent ICO craze, and then those ICOs cashing out their crypto into their local fiat currency.

But, when the news that Vitalik Buterin may have died in a car crash started spreading due to a single post made on 4chan, Ether's price took a 15% hair cut from around $335 down to $285 within 12 hours. Not only did it highlight how sensitive investors were to negative news, it brought up a key point that Ethereum's stability and growth prospects are heavily attached to Vitalik, himself. Irrespective, the news just accelerated Ether's decline in price.

Source: https://qz.com/1014559/vitalik-buterin-dead-a-hoax-on-4chan-crashed-ethereums-price/

Sentiment around Bitcoin's August 1st Fork Leaves a Future of Uncertainty

Even with all of the positive news of Asia opening its doors to Bitcoin, Japan legalizing it, Korea looking to regulate it, Venezuelans using it as a medium of bypassing hyperinflation, the Sentiment around Bitcoin is uncertain due to the upcoming Fork.

Bitcoin may stay as a single coin, it might split into two coins, and in either case we don't know if the code underlying the changes to the Bitcoin network will be robust enough to not break. There is no reason to assume it will break, but since it hasn't been activated we just don't know.

As I've mentioned before, Investors hate uncertainty. It prevents us from predicting the direction of a market. And, with Bitcoin, there is nothing an investor can do to predict what might happen to it after August 1st.

This event can make or break Bitcoin, and also can cause side effects on the Altcoin space moving forward since Bitcoin's direction impacts the direction of the Altcoin market as well at this stage. This simple unknown is enough for many investors to have taken their money off the table while they are waiting patiently on the sidelines before re-entering once it's "safe".

The takeaway for me, at least, is until Bitcoin is functioning well post the Fork, we're not going to see any major upside moves. Once we're in the clear, though, the market should hopefully start to find equilibrium and then start to move up again.

Altcoin Update: $40B Support. $50B Resistance. Descending Channel.

Another day in the cryptospace and we've been giving back quite a bit of what we gained over the past few months. As of writing this article we're roughly at a $45B market cap for the Altcoin space. Currently, we are bouncing between the $40B support level at the bottom and the $50B resistance level at the top, with decreasing momentum to the upside.

You may have noticed that we have bounced off of the $40B support level twice over the past few days, but we're still in a descending channel marked as a red rectangle encompassing the price movement. We're looking for a level of support that we can hold above for a number of days in the hope that we'll start to see a trend reversal.

Be aware that if we break the $40B support, we'll likely see a sharp move down to the $30B level, as we saw moving from the $50B down to the $40B level. I am NOT saying this is what will happen. But, I am preparing for such a situation to arise, if it does.

I know it's a bit tough right now for all of us. We want this decline to just end already :) The good news is that it will. As always, remember the market cycle typically ends much higher than it was at before the major bull run began. From there it just moves up again. Patience will suit us all well.