Mayhem in Cryptoland

Abraham George Market Musings

It was all Mayhem in crypto land yesterday. When Bitcoin sneezes all other cryptos can even catch a bigger cold mainly on the back of lesser liquidity.

China has been cracking on Bitcoin for a long time but they came very strongly on Bitcoin mining farms yesterday. They pulled the power on 26 mining farms in Sichuan virtually telling them to pack out of the country. This no doubt created a selling frenzy forcing Bitcoin to drop to the 28000 handle. That price area was rejected quickly creating a big selling tail and a double bottom. In my assumption there was institutional buying at the lower levels. I yet have to see a Market Profile chart to get better confirmation.

Sichuan was the last haven for Bitcoin mining in China. They had already banned in the Mongolian region where coal was available in plenty. So are these steps taken by China good or bad for Bitcoin? I think it is unequivocally good for Bitcoin. Firstly it reduces China’s influence on Bitcoin. Secondly, it is good for China’s carbon foot print. Wherever Bitcoin will find its next major home for mining (could be Kazakstan or El Salvador) the mining should be more eco-friendly.

No doubt the crackdown has reduced Bitcoin’s hashrate by about 17% . (Hashrate is a measure of the computational power per second used when mining; in short, it is the speed of mining). In the grand scheme of things, this drop is marginal and very soon Bitcoin will catch up with that.

With yesterday’s price action have we seen the bottom in Bitcoin? I don’t want to be brave to say that. One thing for sure you cannot treat or consider the volatility that you see in cryptos the same way as other major very liquid instruments like bonds, currencies and major indices. Cryptos only have a dozen years of historical reference and we have many times seen movements to hell and heaven and back to hell again.

The most important thing is considering the volatility and extreme price actions in one direction, one should never be leveraged. I would also suggest that in most situations it is not an asset class for you to maintain a stop loss. Your position should be such that you are able to dollar average. Technical analysis is 50/50 in cryptos and you cannot apply any rigid principles with a stop-loss. Having said that Bitcoin languished around the lower half of 30,000 for weeks and even the upper level close to 40,000 was rejected repeatedly. So this break below 30,000 and climb up into the 33,000 is significant. I will be interesting to monitor the price action in the coming weeks.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.