Bitcoin Price Can Find Help at This Level as Tariff News Forces Traders Out

If it seems like we just questioned Bitcoin, we kind of did almost a month ago, when it was trading close to its lows versus the U.S. dollar for the month of January. 

Now, Bitcoin and other cryptocurrencies are taking a backyard beating in response to the reality of what appears to be a trade war between the U.S. and its three closest trading partners. Is this trade war really just posturing as a means toward provoking serious negotiation from nations that have had substantial trade surpluses with the U.S. and have placed tariffs on U.S. goods in the past that were never responded to on the U.S. side?

Then there's the whole illegal alien/fentanyl thing, which, while supplying U.S. businesses with illegally cheap labor, also had a negative impact on the U.S. middle class as quality jobs were lost and those wages were suppressed. On top of that, crime rates ran higher as the U.S. southern border with Mexico was not protected by either side (at least, not on the federal level — certain states did do what they could) and drug-related problems expanded.

I mention all of these political and geopolitical issues to make the point that these tariffs, even if meant as the opening salvo in a negotiatory process, could actually last longer than some economists I've seen on the tube this morning are projecting. Tariff-related news headlines will likely force an algorithmic over-reaction across U.S. financial markets from this day forward, until we get to a point of perceived stabilization.

One of the first algorithmic reactions (I don't know yet if it is an overreaction), is the flight to safety in the U.S. dollar, and the flight out of cryptocurrencies. This is a little on the ironic side, as the drive behind Bitcoin's move higher in 2024 has been in addition to broad acceptance by the American financial services industry and leverage where possible, but at the grassroots level, a desire to move away from central bank-controlled fiat reserve currencies.

Into the Fire?

Last month, I showed you what I thought looked like a head-and-shoulders pattern for Bitcoin versus the U.S. dollar. Boy, was I wrong. That said, Bitcoin, unless this whole tariff war is resolved pronto, may have jumped out of the frying pan and into the fire. This Is what it looks like when a pattern evolves but remains bearish:

That's what I thought I saw, and it was a legit reading of the chart at the time. However, the neckline of that head-and-shoulders pattern proved to be support that still has not cracked. That said, this is what I now see:

Whoa. That's a little scarier. Instead of the bearish pattern with a pivot around $92,000, now Bitcoin holders are staring at a bearish pattern with a pivot of roughly $89,000 as the underlying investment has already lost its 21-day EMA and 50-day SMA. 

This could force swing traders out of spot Bitcoin, while professional portfolio managers reduce long-side exposure. Just using my model, should the $89,000 pivot trigger, I am thinking that Bitcoin finds help between the 200-day SMA (currently $78,000) and $82,000. Right now, with no active Bitcoin exposure, this area is where my target for initiation stands.

The Competition...

The best hope right now for cryptocurrency investors is that the U.S. dollar weakens from these lofty levels. 

Readers will see that the U.S. dollar Index ran higher from late September into mid-January in what is called a rising-wedge pattern, which is a pattern of bearish reversal. Readers will also see that the DXY or "dixie" has already experienced that sell-off and is back on the rise on this tariff news. 

What bitcoin (and commodities) investors have to hope for now, is that with the U.S. dollar index rising, that a double-top reversal just like the one I showed you above develops here.

At the time of publication, Guifoyle had no positions in any securities mentioned.