Bitcoin Price Analysis – Last Leg Down to Where?

August 11, 2014 22:25 UTC
At the time of writing, the Bitstamp exchange price has entered a holding pattern around $575.

Bitcoin price began descending yesterday, 10 August, with acceleration becoming evident today during the US trading session. At the time of writing, the Bitstamp exchange price has entered a holding pattern around $575. Additional downside seems inevitable, and chart analysis suggests that the current wave down may be the last. However, it may also be the strongest wave of the current decline. Before making a hasty trading decision, be sure to read the analysis below and take note of the likely primary and secondary targets that could see either correction or reversal.

[divider]CCN[/divider]

Update 16 Aug

Weekend trade is seeing selling pressure to the downside and we have an unresolved Fib targets at $470 and $440 on the Bitstamp chart. Notice that these are not the writer’s targets being arbitrarily imposed on the chart, but a historical preference that BTC/USD has for .618 Fibonacci extension levels, as the analysis below attests to.

Now that the lows from several months ago are coming back into focus, it can be argued that the current decline is terminal – that it will take BTC/USD to new lows for the year and confirm the great Bitcoin bubble dead. Not so. Bitcoin is a disruptive innovation which is only at the start of it’s infancy. A new low would only increase the rate at which keen-eyed speculators pile in to the market. The standard indicators are diverged at all time frames and positioned full-tilt in buying territory. Whether $440 proves to be an interim or absolute reaction zone, we can expect to see some fireworks when that level is touched.

Update 15 Aug

The next stop is $470, followed by $440. With market participants still eagerly placing sell orders above the declining price, back to $420 is now looking like a possibility – but support at $440 will need to be broken first. Price could make a stronger upward correction from one of the aforementioned price levels. Weekend analysis will assess the progress of decline.

Update 14 Aug

The market has not reacted to $525 in a manner that is consistent with trend reversal. If $525 holds (and is perhaps followed by a marginal new low) we may see the start of a gradual move back to the surface at $600. However, this seems unlikely. Market participants are hesitant and there is the smell of fear in the air. One could expect the mood to darken further, and only once pessimism is pervasive, would the BTC phoenix rise from the ashes. Realistically, if $525 gives way, brace for the 3.618 Fibonacci extension at $495.

Brief

Previous analysis recognized that the market was in a consolidation phase and hesitated to call a bottom. The central feature of the wave of decline since the high on 1 July has been the descending envelope shown in purple on the chart below. This envelope contains the declining pattern and converges at the November 2013 all-time high.

Elliott Wave analysis suggested that another wave up would target $610 and either continue or turn back down from this level. Since price did reverse at $607 (Bitstamp), the pattern and wave count were confirmed, and the current wave down is therefore wave e as implied on the chart. An alternate wave count is discussed below.

A telling sign had been that wave c terminated between 1.618 and 2.618 of the extension of the first wave down (see chart below), and this usually prompts an additional wave to satisfy the Fibonacci ratio target.

Bitstamp Chart 11 August

The current chart shows the awkward termination of wave c. Decline had been hampered by a support zone around $550 and the desired Fibonacci extensions of wave a could not be achieved. Hence, price action retreated in wave d and will now seek to achieve the 2.618 Fib target at $525.

An alternate count for the advance toward $610 and subsequent decline interprets the downside as complete – although awkward – at the end of wave c. Accordingly, price is in the process of correcting in wave 2 (annotated in red). In this case price action should correct toward $556 without reaching it, reverse and begin a steady advance.

Continued decline in wave e has $556 as a way point, with $525 being it’s primary target, although a stronger sell-off could see Fibonacci extension 3.618 and even 4.618 as Bitcoin tends to extend the fifth wave of its wave structures. The aforementioned Fib extensions are both below $500, and that level of decline cannot be ascertained without further price action providing clues.

Presently, wave e‘s first wave down also projects a Fib extension of 2.618 down to $525, thereby providing confluence – if not confirmation – of $525 as the primary target.

Notes

  • The chart above was borrowed (in haste) from an article Does News Move The Bitcoin Market? and, therefore, includes major news events of the past few weeks. No influence on price is implied by these news events – in fact, the linked article makes the point that news does not affect market direction.
  • In the past, bitcoin has often declined violently during the final stages of the fifth wave (e or 5) only to bounce strongly off a level far below, and launching straight into a rally. Not that price will necessarily repeat this behaviour, but this is a likely scenario for such action.
  • 10 August was the date of Lunar perigee and hence a “super” full moon. Traders who consider Lunar phase in their market positioning will be aware that full moons tend to be accompanied by strong decline – nevermind “super” full moon.
  • Reiterating the alternate count: there is a strong zone of support at $556 and a reversal can occur at or above it. Such action will need to ascend above $590 and $610 in rapid succession to confirm a change in trend.
  • Traders nurturing underwater long positions may be saved by the alternate count, and those seeking to enter long based on the prospect of reversal before $556 should be cautious of the risk of deep decline. Best to build a long position incrementally and not open it to full size in a single large position.

Bitcoin price analysis updates will be posted here at such times as significant price action becomes evident. For now, the primary target of decline is $525, with further analysis keeping an eye on how price negotiates way point $556.

Disclaimer
The writer is fully invested in bitcoin via BTC-e and Bitfinex. Trade and Investment is risky but not as risky as some other things out there. Take care only to take action in the market when you are 100% sure of your intended actions for the eventual outcomes. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this report.

Featured image by Shutterstock.

Last modified: July 12, 2015 10:43 UTC

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@venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.