The Retracement Begins

Newsletter of the week 12 August - 19 August. In this week's newsletter we cover the Price Action of BTC, the US30 and NASDAQ, U.S Crypto Sanctions, Rate Hikes, and 'The Big Short' Michael Burry.
by Yoaquim Boom
September 18, 2022

The Retracement Begins

In This Week’s Newsletter

  • Bitcoin finally breaks the wedge bearish
  • US30 peaks out if it's flag, likely to be a bull trap
  • NASDAQ analysis shows a long way down if the market flips
  • The U.S. Treasury sanctions Tornado Cash, and many repercussions follow
  • FED Minutes show continued FED rate hikes, slower hikes will come eventually
  • The 'Big Short' Michael Burry sells all stocks except one in light of 'drastic upcoming economic downturn'.

Bitcoin Price Analysis

Bitcoin has finally broken the wedge pattern we have continuously announced in the last few newsletters (Fig. 1).

Since the breakdown and retest of the wedge on the 18th of August Bitcoin has significantly dropped to the 21000 support area.

Although the flag pattern mentioned in last week's newsletter still looks intact the repercussions of the rising wedge are likely to outweigh the support of the flag (Fig. 2).

The breakdown of the flag is evermore likely in consideration of the US30, NASDAQ, and Rate Hike analyses that follow in today's newsletter.

The final chance for Bitcoin to show strength and prove a bottom may be in is for it to form a rectangle consolidation pattern in the $5000 range from 19000 - 24000 (Fig. 3).

Admittedly, many investors will have no conviction in this range's strength and longevity.

Fig. 1 12H BTC May 2022 - Aug 2022 (TradingView)

Fig. 2 1D BTC Mar 2022 - Aug 2022 (TradingView)

Fig. 3 1D BTC Apr 2022 - Aug 2022 (TradingView)

US30 Price Analysis

The US30 is also known as the Dow Jones Industrial Average (DJIA)

Since late November 2021, the US30 has neatly followed a bull flag pattern on the daily - weekly chart (Fig. 4).

In April 2022 we saw the first breakout which was not sustained and quickly turned into a bull trap creating new lows by mid-May.

On the 8th of August, we saw another breakout, which has since been held up.

Unfortunately, the likelihood of this being a permanent breakout that brings us to new all-time highs is extremely low considering the economic environment in which we currently reside.

If the current breakout turns into a bull trap and forms new lows a revisit of the lower boundaries of the flag pattern is likely.

This revisit of the lows would put the US30 down about 18% leveling out at 28000.

Fig. 4 1D US30 Oct 2021 - Aug 2022 (TradingView)

NASDAQ Price Analysis

The NASDAQ has had a great sustained rally since the ascending triangle revival pattern out of its May lows.

NASDAQ has put in a higher high after breaking through the April 1 2022 high at 184.6.

The NASDAQ bulls have successfully put in a rally of over 38% of the May lows and although the structure of the NASDAQ continues to look very bullish it is certainly due for a pullback.

The pullback can easily let us revisit the 170 level for a drop of 11%. If the broader market begins a bigger pullback than the bulls hope a revisit of the ascending triangle down at 160 could form, putting the NASDAQ back down over 18% (See Fig. 5).

Fig. 5 3D NASDAQ Apr 2021 - Aug 2022 (TradingView)

The U.S. Treasury Sanctions Tornado Cash

What is Tornado Cash?

Tornado Cash essentially anonymized transactions on the Ethereum network, removing all traces of where funds came from and where they went.

Tornado Cash was a commonly used Dapp amongst crypto users concerned with the privacy of their transactions.

What Happened

The protocol was unfortunately also used by cybercriminals to launder money. The sanction stated that Tornado is a favored tool for north Korean hackers, these hackers have stolen over 7 billion dollars according to the report.

Although evidence has arisen that these numbers are likely highly inflated, with 7 billion USD actually being the total amount of cryptocurrency that transacted through Tornado Cash since its release.

De-Fi Consequences

The sanctioning of tornado cash resulted in many crypto exchanges and DeFi applications cutting interaction with the tornado cash application.

Even worse, some De-Fi applications cut ties with wallets that had at any point interacted with Tornado Cash at all.

Celebrities Violating Sanctions

On top of this, a user on Twitter announced they had started to send small amounts of ETH to the public addresses of celebrities and big crypto influencers through his tornado cash account.

Some of the celebrities involved included Coinbase CEO Brian Armstrong, Jimmy Fallon, and Steve Aoki. Through the sending of these small amounts of ETH, these celebrities violated the US Treasury sanctions by interacting with the sanctioned Tornado protocol.

Violating the sanction in any form of interaction with the Tornado Cash Protocol could lead up to a 10 million dollar fine and 10 years in prison.

Developer Arrested by Dutch Police

The final, most chilling event of the Tornado sanction is the arrest of a tornado cash developer by the Dutch government.

The reasons for his arrest are still unclear, the Dutch government has made a statement on their FIOD site.

The statement asserted that the written code could possibly be deemed criminal. This development could have dangerous implications and set a dangerous paradigm for programmers and developers.

Being arrested by what code you write for decentralization seems a dangerous line to cross

Tornado Cash is an open-source decentralized application, thus it is a public good. Sanctioning an open-source application because it is also used by criminals can be analogous to sanctioning a highway because criminals also drive on it.

In conclusion, the criminals are likely to continue to use this protocol, since by definition they do not abide by the law and the developers and law-abiding users are the only ones suffering through these sanctions.

FED Minutes Announces More Rate Hikes

U.S. central bank governors announced they anticipate further interest rate increases in the upcoming months at the recent Fed Minutes meeting.

Once more they also concurred with the rest of the financial-sector government officials that the pace of rate hikes will likely slow once they see a significant impact of the Federal Reserve’s policy making on inflation.

The current pace is likely to continue until the FED sees some real control over inflationary levels. “...It likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2%,” the minutes said.

We are currently 6.5% from the FEDs inflation goal (Fig. 6).

Fig.6 2018 - 2022 Inflation Statistics

'Big Short' Micheal Burry Sells All Stocks Except One

Michael Burry's Scion Asset Management disclosure has revealed that the hedge fund has sold off all stocks in its portfolio including Apple, Alphabet, Meta, and Nexstar (Fig. 7).

Michael Burry has previously been a great foresight when it comes to big economic downturns, his bearishness is certainly fear evoking for the broader market.

Fig.7 Micheal Burry's Holdings (