The technical clue showed the way.

One of the biggest debates in the financial markets resolves around bitcoin. Is it for real? What is it? Will it go back to $10,000, $20,000 and beyond? Will it crash to $0 and be deemed worthless?

The fact is, I really don't care one way or the other what "story" is driving bitcoin.

Now, athough there are a lot of things that make it not worth my time to trade including safety of counterparty/broker, the deregulation of the market (I kinda like umpires/referees/regulatory watchdogs), liquidity,etc., there are clues in the market price action and tools applied, that allow traders to define risk and a bias.

As long as a traded instrument (it could even be tulip bulbs), follows some technical tools where risk can be defined and limited, traders have the ability to protect, and also profit from their trading that instrument.

One very simple tool that traders can use is the good old 100 and 200 hour MAs (I am not surprised).

Looking the hourly chart of bitcoin on the Coinbase exchange, the 100 hour MA is the blue line. The 200 hour MA is the green line.

Over the last 40 or so days, the price has traded above and below the 100 and 200 hour MA on 6 separate occasions (see green numbered circles).

  • On June 11th the 100 and 200 hour MA was broken and the price trended lower
  • On June 18th/19th the price moved back above the 100 and 200 hour MA and moved higher. The gain was modest but the price stayed above those MAs four days - it just did not have a lot of upside momentum
  • On June 22, the price fell back below the 100 and 200 hour MA and tumbled lower (see green circle 3). You could have anticipated that given the modest rise after the break on 18th/19th.
  • On June 29th/30th, the price moved back above the lower 100 and 200 hour MAs (see green circle 4) and ran higher.
  • On July 10th, the MAs were broken to the downside and the price ran lower
  • Finally, in trading today (July 16th) the price broke above the MAs (green circle 6) and the price raced higher.

Today's break higher was attributed to a report that Blackrock is interested in blockchain. That was initially interpreted as meaning Blackrock is interested in bitcoin (and cryptocurrencies). Hence the run higher. In reality, you can love blockchain and not love bitcoin and that is basically what Blackrock ended up saying.

Does it matter to traders if Blackrock loves blockchain or bitcoin? By the same token, does it really matter if there is $20M heist of bitcoins at some bitcoin broker out there?

Not really.

For traders trading the unknowns of the bitcoin market seriously, as long as the price action and trading tools consistently shows a run higher on the break of the 100 and 200 hour MA to the upside, or a run lower on the break of the 100 and 200 hour MA on the downside, who cares what the "reason" is and whether that "reason" makes sense or not.

Blackrock liking blockchain should really have little to do about the price of bitcoin. However, because it pushed the price above the 100 and 200 hour MA, and because "the market" looks at that as bullish, you gotta go with the break.

So, the fact that bitcoin may have an equal shot of going toward $0 as it does to head toward $10,000 (at least in my mind), does not require traders to have pick one side, or the other and hope.

Instead listen to what "the market" is telling you from the 100 and 200 hour MA. If you are there trading when the market makes a break above or below each - regardless of the reason(s) - go with it. "The market" seems to care. You might as well too.