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September 18, 2019 | Technically Speaking, Bitcoin Ripe for Major Move: Which Way?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
 

Bitcoin has been consolidating for months. Generally, and technically speaking, this suggests a big move is coming.

I have no position in Bitcoin and I doubt that changes although I do not rule out a token amount in certain circumstances.

That said, I do find the technology fascinating and I occasionally look at charts.

Bitcoin Weekly Chart

One can find bullish or bearish interpretations of the charts.

Your guess is as good as mine as to what they mean, if indeed anything at all.

Maybe nothing happens for three more months, at which point an even bigger move will be implied.

Bitcoin Observation

Bingo

For all this “Bitcoin for the masses nonsense” mostly the wealthy will buy it or trade it.

I wish that was not true, but the concentration of “Bitcoin Whales” and volatility suggest otherwise.

“Bitcoin Thursday” Coming

Bitcoin is a free market construct so I do not root against it no matter how obnoxious many of the Bitcoin promoters are.

However, the moment Bitcoin threatens central banks it will be squashed in seconds just as the Hunt Brothers were squashed on “Silver Thursday” for cornering the silver market in 1980.

Nelson Bunker Hunt, Lamar Hunt, and William Herbert Hunt, the sons of Texas oil billionaire Haroldson Lafayette Hunt, Jr., had for some time been attempting to corner the market in silver. In 1979, the price for silver (based on the London Fix) jumped from $6.08 per troy ounce ($0.195/g) on January 1, 1979 to a record high of $49.45 per troy ounce ($1.590/g) on January 18, 1980, which represents an increase of 713%. The brothers were estimated to hold one third of the entire world supply of silver (other than that held by governments). The situation for other prospective purchasers of silver was so dire that on March 26, 1980 the jeweller Tiffany’s took out a full page ad in The New York Times, condemning the Hunt Brothers and stating “We think it is unconscionable for anyone to hoard several billion, yes billion, dollars’ worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver”.

But on January 7, 1980, in response to the Hunts’ accumulation, the exchange rules regarding leverage were changed, when COMEX adopted “Silver Rule 7” placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and, as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.

The Hunt brothers had invested heavily in futures contracts through several brokers, including the brokerage firm Bache Halsey Stuart Shields, later Prudential-Bache Securities and Prudential Securities. When the price of silver dropped below their minimum margin requirement, they were issued a margin call for $100 million. The Hunts were unable to meet the margin call, and, with the brothers facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse.

To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the brothers which allowed them to pay Bache which, in turn, survived the ordeal. The U.S. Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache.

Corner Bitcoin?

I do not propose anyone will “corner” Bitcoin, but theoretically it can happen.

Instead, I do propose central banks will suddenly, without warning, change investment rules on Bitcoin if the price gets high enough for central bankers to be threatened.

That is what happened with silver.

What is that price?

I don’t know, nor does anyone else. It will only be observable after the fact.

If you think Bitcoin is immune to central bank actions, you are only nuts.

Best Thing for Bitcoin

The best thing for Bitcoin would be if it consolidates in a reasonable range of say $4,000 to $12,000 for decades.

Only after a long, non-threatening period of stability will bitcoin be viable as a transaction mechanism as opposed to a speculation mechanism.

I do not expect Bitcoin to play out that way.

Too the Moon

To the Moon, Alice? You better hope you cash out in time!

Mike “Mish” Shedlock

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September 18th, 2019

Posted In: Mish Talk

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