Some things never change… and smart investors use that to their advantage.
I’m guessing you’ve never heard of Richard Wyckoff. After all, he was born 148 years ago and died 87 years ago.
What the heck could someone who passed away more than 80 years before Bitcoin (CCC:BTC-USD) was even developed teach us about cryptocurrencies today?
Turns out… a lot.
Richard Wyckoff is one of the original fathers of technical analysis. He was a pioneer in this approach to studying the market, and even though his work goes back to the early 1900s, it provides a valuable framework for analyzing Bitcoin and altcoins.
Especially right now when the price action in Bitcoin has been pretty lousy the last couple of months.
Let’s take a look at what that volatility is telling us about the present and the future through the eyes of someone who lived a century ago. It’s fascinating, and it could help you make a lot of money…
Over the course of his career on Wall Street, Richard Wyckoff observed individual investors getting repeatedly fleeced by larger institutions. The big money almost always traded against the little guy, and it almost always won.
Told you some things never change.
I hear from investors all the time who think the game is rigged against them… and they’re not wrong in many cases.
I’m not happy about that, and neither was Wyckoff. He spent the greater part of his life hoping to level the playing field by instructing individuals about “the real rules of the game” as played by the big money. If that sounds like a modern-day newsletter service, you’re right. He was the founder of The Magazine of Wall Street and editor of Stock Market Technique.
The titles may be bland, but he was on to something.
Wyckoff focused on the factors that most affect price action, including supply and demand, volume, and emotion and psychology. He realized that individuals were almost always buying and selling at the worst times.
That should sound familiar, too.
To help understand the “game” and price movements, he came up with an imaginary person he called the Composite Man.
…[A]ll the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.
And that’s why we can learn a lot about Bitcoin’s price action from someone who died long before computers were even thought of, much less cryptocurrencies.
The same dynamics and patterns existed then, and they exist now in markets with institutional investors involved.
Below is a schematic of a Wyckoff accumulation event — a buying phase in which an asset’s price increases after selling off. The important takeaway is that the buying phase happens when individuals are selling out of fear and exhaustion, usually at a loss.
And guess who is happy to step in and buy at a discount? The institutions.
Now, compare that image above to the chart below showing Bitcoin over the last five weeks. Pretty similar, wouldn’t you say?
There’s a good chance Bitcoin is later in Phase B or possibly in Phase C right now. That would mean we are close to a breakout to the upside.
Bitcoin has bounced from just under $29,000 at the beginning of last week to current prices around $35,000. There is significant resistance just ahead at the $39,000-$41,000 level (the top horizontal yellow line), so price action around those levels will be important.
Whenever the breakout does happen, we could easily see a big move in Bitcoin… and even bigger bounces in smaller cryptocurrencies known as altcoins.
And there is virtually a 0% chance that the breakout won’t happen.
Blockchain and the software that runs on it — the cryptocurrencies — are transformative technologies. Such a massive transformation will take time, which is why we invest for the future more than the present.
Plus… Richard Wyckoff’s analysis describes exactly what is happening with Bitcoin right now. Data shows that short-term holders — mostly individuals who bought when Bitcoin was soaring earlier in the year — are getting shaken out of their investments and selling at a loss. Longer-term holders — more of the institutions — are hanging on and even buying more.
From June 18 through June 25 — when Bitcoin fell nearly 15% — long-term holders added 120,739 Bitcoins while short-term holders unloaded 97,333 Bitcoins, according to data from Glassnode.
That’s a shame. Just as Wyckoff observed more than a century ago, weak hands continue to sell into stronger hands.
And as a final nod to Wyckoff, I would also suggest that cryptocurrencies are the number one weapon regular folks have against Wall Street right now.
We want more transparency in things like investing, saving, loans, insurance, trading, betting and more. That’s what this new phase in the evolution of cryptocurrencies provides. Bitcoin pioneer Charlie Shrem and I call this “Blockchain 2.0.”
Bitcoin earned the bulk of the gains during the first phase. But this new era belongs to hypergrowth altcoins.
Thanks to altcoins, anyone with an internet connection can access crucial financial services all in one place — cheaper, easier and safer than if they went with a big institution. With just a single click of your finger, you’ll be able to take out a loan or mortgage… buy a new insurance policy… make money loaning out your money… and invest in stocks, bonds or any other asset class.
And the best part? You won’t have to deal with a middleman and their unnecessary fees.
This is a massive cryptocurrency catalyst that is about to fuel select altcoins to never-before-seen heights.
It’s a global movement toward an open financial system… and the biggest revolution to occur in finance in centuries.
The flood gates are just beginning to open.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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