Bitcoin didn’t care about Tesla, and it didn’t care about Amazon either

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Technical price action, not fundamental news, drives bitcoin forward.

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The media rushed to find an explanation for the bitcoin surge above $ 40,000 yesterday, settling for a questionable article in City AM, a free London newspaper, which quoted an unidentified Amazon AMZN insider saying the online retailer was ready to use bitcoin as a form of payment.

Soon after, the same outlets blamed a moderate drop in prices to less than $ 37,000 on Amazon’s denial of the story, which it said was speculation and not truth.

Attempts by journalists to find the causes of short-term bitcoin price action are not new, but they are almost always wrong.

Last month, for example, news agencies jumped on a June 14 report from Reuters claiming that bitcoin rose more than 9% after Tesla TSLA billionaire Elon Musk tweeted that the automaker could end its suspension of bitcoin payments. That was incorrect: The cryptocurrency only moved 5.4% after Musks’ tweet at 5:42 p.m. GMT, having already started an ascent two hours before his remarks.

Reuters corrected this error after I reported it to the authors of the articles, but no other media has changed its repeat of the error.

I make this point so as not to criticize Reuters for its otherwise superb standards of news reporting; nor to discredit media companies that unsuccessfully attempt to explain bitcoin price action through current events.

Rather, I present this an opportunity to show how bitcoin price movements are largely influenced by technical indicators and trends on charts as opposed to fundamental events. This is not to say that individuals, businesses and governments do not influence market sentiment. They clearly do. But their role in driving short-term price movements is usually overstated by journalists trying to come up with straightforward narratives for a complex asset class.

Let’s start by looking at a timeline of Amazon history and place it side by side with the raw price data.

On July 23, Coindesk announced that Amazon had posted a job posting for a newly created position as product manager of digital currency and blockchain which, understandably, fueled speculation about a possible move of the company. to cryptocurrency. Bitcoin appreciated 4.2% that day, closing at $ 33,684, according to the Bitstamp exchange. However, it had also risen in the two days before the report, including a larger jump of 7.9% on July 21, suggesting an uptrend was already in effect.

Bitcoin continued to appreciate over the next three days, peaking at an intraday high of 14.5% of $ 40,581 on July 26, the day the City AMs article was published. This was then reduced to a gain of 5.3% after a withdrawal in the evening.

At first glance, it is tempting to attribute Monday’s sharp increase to the London newspapers report. Likewise, Amazon’s denial on the evening of July 26 appears to coincide with the pullback below $ 37,000.

Look at the daily chart, however, and a very different picture emerges:

DAILY TABLE: When news of Amazon’s job posting broke on July 23, bitcoin was already three days old … [+] in an uptrend that was triggered by a decisive rebound on a descending trendline (blue line). It then encountered resistance at the 144-day (pink line) and 200-day (green line) exponential moving averages on July 26.

BITSTAMP

The chart shows, in visual form, that the short-term bitcoin uptrend started before Amazon’s job posting was published. It is important to note that the pace of the trend does not appear to have been affected by any of the reporting that followed.

So what caused this sudden surge on July 21, and why did the price overstep and correct on July 26?

The answer can be found in an article I published at the end of June, in which I drew attention to a downtrend line (blue line) that had, at this point, rejected the price downward six times. I noted at the time: Trendlines act as support and resistance levels once widely recognized by traders, creating either a floor for the price action’s rally or a ceiling for the price action’s recovery. bearish momentum.

Bitcoin broke above the trendline shortly after the article was published, turning it from a resistance level to a support level. It then followed the trendline for three weeks, strengthening its support and building momentum for the July 21 rally.

What about the Monday night withdrawal of $ 40,581?

Again, the graphics say it all. My previous article used the 4-hour chart to identify two resistance levels above the trendline that should be overcome if a rally were to be supported: the 144 and 200 exponential moving averages. Exceeding those two levels, did I written, would pave the way for a quick raise to $ 41,000, which marked a local high twice since May.

In the end, the price was less than 1% of my target. And the same two exponential moving averages over a different time frame, the 144 days (pink line) and 200 days (green line) marked the July 26 high.

For many bitcoin enthusiasts, especially those with no intention of selling, technical analysis is a fancy exercise devoid of any merit. They are entitled to their opinion. But the reality is that most traders use indicators (such as exponential moving averages) and patterns (such as trendlines) to time their entry and exit into the market. This creates a loose consensus in the market, resulting in groups of orders around widely perceived support and resistance levels.

When held or broken, these levels trigger cascading buying and selling which helps the market find direction.

Few mainstream journalists understand technical analysis, let alone truly understand bitcoin. So it’s no surprise that the media prefers to publish more rewarding stories on Amazon, Tesla, the Chinese government, US regulators, and other phantom causes.

They are generally wrong to do so. At most, Amazon’s story last week gave market participants an excuse to test the limits of an uptrend that was already in full swing.

It’s important to recognize that significant and credible news regarding business adoption will of course impact the short-term price of bitcoin. Tesla demonstrated this dramatically in February, when Musk announced the purchase of $ 1.5 billion worth of bitcoin; and again in May, when it temporarily stopped accepting payments for vehicles in bitcoin for environmental reasons. Government actions can also have an impact on prices in the short term.

Zoom out, however, and these events are just simple jumps in the longer-term uptrend that has guided bitcoin since its inception 12 years ago.

Why is it going up? Because it is the best opportunity for society to create a global digital currency accessible to all and not vulnerable to manipulation by the government or the central bank. In the long run, bitcoin doesn’t care about Amazon’s job postings or Tesla CEO’s mood swings.

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