Waiting for $40k

Last night I got this question from a finance-bro friend. He'd bought some BTC last cycle, sold at $40k for a handsome profit and looked like a genius for 2 years. Now he's pondering when to "get back in". He asked for my opinion on his plan:

Next time it drops to $40k I'll buy through the BTC ETF (I trust BlackRock custody more than I trust myself).

My quick answer was "No you won't. For the same reason you didn't buy back at $20k"

It's worth unpacking a few aspects of this plan:

Entry Point

Is it sensible to believe BTC could drop back to $40k?

Obviously no one can predict the future, but there's strong precedent for using moving averages to predict support lines: it's unlikely price will fall below the average price of Bitcoin over the past 4 years ("slow" average), but it's likely it could fall below its average price over the past 4 weeks ("fast" average).

I use these kinds of average for my weekly "Bitcoin Surfing" chart in which I usually show only the past 4 years.

Below we're going to look at the chart through BTC's entire lifetime (you'll notice some lines take time to "appear". As a reminder, each candle in this chart represents 1 week and the lines/levels which I've colored and nicknamed metaphorically as Mantle, Bedrock, Sand, Water and The Board are simply moving averages (from slowest to fastest). The rule of thumb is: the "slower" the moving average, the stronger the "support".

A fall back to the $40k level would get close to current "Bedrock" levels ($38.5k). Hitting "Bedrock usually means one of two things: we're near the bottom of a bear market or some market catastrophe happened (FTX blowing up, etc.)

If we look at instances in the past where price has dropped low enough to touch "Bedrock" we see (instances 1, 2 and 3) it has usually been a sharp move down —marking the low for that year— followed by a quick bounce back up.

The current cycle ( instances 4, 5 and 6.) has been exceptional:

• It's been the first time price stayed below "Bedrock" longer than 2 weeks
• It's been the first time price went low enough to pierce the "Mantle" (and stayed there for 2 months)
• It's been the first time price broke out of Bedrock (twice) only to fall back below again.

My reading of this is that the lows for this cycle were plumbed and trawled rather exhaustively. There was plenty of opportunity for weak hands to capitulate below $20k, and we spent from early December to February hugging the $40k mark and push past once the ETFs came to life —the most aggressive down-wick we've seen since the ETFs only reached the $49.5k mark.

To me the above suggests we're not going to see $40k again. And if we do it'll be because something so horrible happened in the markets that the last thing on normal people's minds will be buying the dip. The proof is in the pudding: my friend had over 6 months to buy below $20k, he didn't.

Custody

The concept of self-custody is a huge psychological barrier for many people. It's understandable, we're trained to trust the system more than we trust ourselves.

I don't want to minimize the challenge of self custody —it's not just "write down 12 words"— it's figuring out how to store them safely and pass them on if you die / are incapacitated. But it's even harder to convey the importance of it. Buying Bitcoin and stopping it with a custodian is a bit like buying a gun but not buying bullets.

The solutions are increasingly better and more friendly, but they do require SOME effort on your part. You should become competent at self-custody before you make a decision to trust a custodian, incompetence due to laziness is not an acceptable reason to go with a custodian.

Always Expensive

Bitcoin is expensive at every price for newcomers. Most of the profit-taking newcomers miss this. They buy, sell at a nice profit during the bull run and think they'll buy back lower. Then they're proven right as the price crashes validating their decision. But they don't buy back lower because they never developed conviction in the asset. They only notice it again once the current price is higher than their exit.

The right move is to eat humble pie and buy back, but instead many wait for the return of some mystical entry-point.

Last Word

One of the biggest challenges in Bitcoin is this: "Don't outsmart yourself."

Bitcoin News

Decentralizing

As I've mentioned in previous weeks, one of the real, legitimate concerns in Bitcoin has been the centralization of mining. While the actual machines (we will call them hashers) that turn electricity into hashes in the competition to find new blocks are fairly well distributed, they currently have no input into the design off the blocks they are trying to find. To make matters worse, their efforts are channeled by pools which act in concerted fashion behind the scenes.

The end result is only a minuscule handful of pools are deciding the content of new blocks. Ocean Mining has been working to counter this (by offering their hashers different block templates to choose from) and have now released DATUM, software which allows hashers to choose their block templates directly. I know this is technical but it's a hugely important step forward in the constant fight against the natural gravity of centralization.

One day after its release, the first block mined with DATUM was produced. This is excellent and hopeful news.

Regulators

Not all is rainbows, alas. Regulators are still trying to clamp down on self-custody through nonsensical law fare

And the SEC continues to drag its feet allowing for banks to become BTC custodians —not that I'd recommend any individual to custody their BTC with a bank.

As a reminder, it is laughable to claim concerns for criminal activity, which is rampant in the traditional financial system.

Too Late?

It's common for newcomers to feel they're too late for Bitcoin.

If this is you, consider the two tweets below.

Most people are still closed to the idea of Bitcoin —regardless of the numbers, stack hard before they wake up.

Fiat News

Canary

SBF's partner-in-crime Caroline impressed the judge with the extent of her cooperation and got a light, 2-year sentence along with an $11 BILLION fine for her role in the biggest financial fraud in US history.

Xi-mulus

China has opened the floodgates to stimulate its economy

And the market is eating it up. This is good for Bitcoin.

Now do Pelosi

Rules for thee but not for me seems to be the standard in Washington.

Port Strike

There's an imminent port worker strike —across 36 ports on the east coast (and gulf ports)— set to begin at midnight tonight. It is a huge deal (in 2023 they represented close to 26% of the value of all US imports).

Apparently this is below the line for the Commerce Secretary, who is focused on other things.

Muzzles

John Kerry joins the list of politicians who finds your freedom of speech problematic.

Price News

Bitcoin Surfing

Bitcoin tried to use the Board ($60.2k) as a springboard to get above the Water ($63.7k), we'll see how that goes.

Dip Fishing

After briefly punching through the $65k resistance, price is being knocked down hard towards the $62.5k support. $60k may still be in the cards and $56k is not out of the question, but contrary to my friend's opinion I don't think we'll see $40k again.

Calm Chart

This is by no means the first "green September" in Bitcoin's history but it is unusual and unexpected. Will we get "Uptober" despite the looming elections?