Bitcoin and other crypto currencies has been on a real tear lately despite precious metals remaining under pressure. As I am writing this, Bitcoin is trading around 1,800$/btc.
Market Events
Geopolitical risks still remain as tensions in the Asian region are picking up due to North Korea’s missile tests. US President Trump has said that he will not back away from military action if North Korea does not rein in its activity, further increasing the risk of retaliation.
Obviously there are a number other events to come and look for such as the low interest policies of the world central banks, the growing debt problem around the world and the debt ceiling in the US etc.
For now I will focus on mostly the technical aspects of the price of Bitcoin and how I assume it will unfold in the near - to midterm.
Volatility and sell offs
Price fluctuations in the Bitcoin spot rate on the Bitcoin exchanges is driven by many factors.
Volatility in Bitcoin does not yet have a generally accepted index since cryptocurrency as an asset class is still in its nascent stages, but we do know that Bitcoin is capable of volatility in the form of 10x changes in price versus the U.S. dollar, in a relatively short period of time.
Here are just a few of the many factors behind Bitcoin's volatility:
1. Rate of adoption is hampered by bad press: News events that scare Bitcoin users include geopolitical events and statements by governments that Bitcoin is likely to be regulated.
2. Bitcoin's perceived value fluctuates: One reason why Bitcoin may fluctuate against fiat currencies is the perceived store of value versus the fiat currency. Bitcoin has properties that make it similar to gold.
3. Tax treatment of Bitcoin also affects the volatility. Recent announcements by the IRS stating that the currency is actually an asset for tax purposes
4. News about security breaches make investors react: Bitcoin can also become volatile when the Bitcoin community exposes security vulnerabilities in an effort to produce massive open source responses in the form of security fixes.
5. Bitcoin volatility is most importantly driven by holders of large proportions of the total outstanding float of the currency. For Bitcoin investors with current holdings above around $10M, it is not clear how they would liquidate a position that large into a fiat position without severely moving the market, since Bitcoin’s volume still only resembles that of a small cap stock.
Analysing the price action of bitcoin
Now, let’s have a look at the technicals of Bitcoin using Fibonacci extensions and – retracements.
Bitcoin generally have a tendency for explosive extensions to the high side followed by even faster deep retracements to the downside. There are several examples of this if you look at tops and bottoms in this recent rally on the daily graphs.
Now that we have that established, where are we now and where are we heading? Take a look at my prediction for the next month or so of action in the Bitcoin exchange.
The Bottom Line
It does look like volatility has picked up, which is a big indicator for a near term top. Look to take some profits around the 1,800-2,000$ range and stock up in the 1,175-1,340$ range.
Holding on to Bitcoin of course is not a bad course of action long term, but if you are looking to take some profits off the table, it does look like time is about now to do it.
Lastly, never take anything I or anyone else writes or says at face value. Do your own research. Always be critical and look up the validity of the arguments from other sources.
I like your writing. Very well thought out.
Yes..I guess this is heading for $1350 in a hurry..
Thank you for your analysis..could you elaborate on: "Holding on to Bitcoin of course is not a bad course of action long term". Why do you assume this?
I assume this because the Bitoin market is still extremely small. Compared to Gold which has a market value of about 8,2 trillion dollars it is about 0,2% of that. at 21 billion.
But of course. OF COURSE. That is my personal opinion and frankly i haven't seen anything suggest Bitcoin isn't in a bull market at the moment.
What is your estimated market cap for Bitcoin? I assume it can not go higher than gold because (in my personal opinion) gold has higher intrinsic value. I see Bitcoin more as an asset instead of a currency.
Bitcoin could easily clear 1 trillion in market cap since it can be Applied globally. There is more than a 100 trillion US dollars in circulation today and rising (obviously).
The big obstacle for Bitcoin is currently that people only use it to Exchange back to their own currency. If people and retailers would begin to keep the Bitcoins AS BITCOINS, this would be a very differet story.
But as of now, Bitcoin is just a modern form of paypal.
Well of course they do not use it, the transaction speed is too slow. Compared to Ripple or Stellar Lunem for example. And like I said, I don't think people will ever use it as a currency but rather a commodity.
Have you considered SEC's upcoming decision about the Winklevoss's ETF in your analysis at all?
I dont go that much into fundamentals, i look at it purely from a Price action perspective besides outlining some reasons behind volatility.
while the Bitcoin is over $2200 today, I do concur that it is due for a pullback and a sharp one (like it always does) in the range of $2200-$2400. I also wrote a blog on it. Please feel free to check it out. [clicked the follow :-)]. By the way, how do you make the font size bigger for subheadings like you did.
figured out the font size.