Most market participants and analysts are expecting a reversal from current levels and an imminent flight of glory on board the Bitcoin Moon Rocket. However, the writer believes that it is not a moon rocket at all, and that there are technical reasons that argue for continued decline. Traders and investors should take advantage of the price lows to buy Bitcoin aggressively and with a sensible position building strategy as outlined in the previous link. An interim target near $400 awaits, followed by retracement back to support-turned-resistance at $440 and a subsequent target around $350. Expect increased volatility and lower lows.
Last week CCN published an analysis report that made some medium- and long-term price predictions for BTC/USD. Here is the accompanying chart again:
The ongoing decline confirms the long-term forecast of a Bitcoin market low in the $140-$260 price zone. It is anticipated, by the price action of previous waves down, that this final terminal decline will unfold as an ending diagonal – most likely of the expanding variety.
Although still too early to accurately define the trendlines that will delineate price action to the market low, the following 4 Hour candle chart (BTC-e) outlines a likely resistance zone that may contain price (click on the chart to enlarge).
Fibonacci extensions of the initial A wave are used to determine major wave endings. 1.618, 2.618 and 3.618 Fibonacci extensions are projected to the downside and the consistency with which Bitcoin price targets these specific levels can be seen in the previous wave example on the left of the chart. Readers are encouraged to confirm this phenomenon in prior waves that are not shown above. Price is currently resolving issues at the 1.618 extension of the first wave of the current decline, which happens to fall exactly on an established support and resistance level.
As downside progresses it can be assumed, with some degree of certainty, that volatility will ramp up as buyers enter large positions in anticipation of a change in trend.
Price making higher highs will be an initial sign of possible reversal with a daily candle close above the blue trendline (pointed finger) confirming the change of trend.
Turning to the Litecoin (LTC/USD) BTC-e chart, we see a familiar picture. Given Litecoin’s later arrival, LTC/USD is unfolding with a different wave count and at a different degree of trend than BTC/USD. Even so, some likely downside targets can be established, and we have a likely target range between $4-5.50.
Will Litecoin follow Bitcoin to new price highs? Or will it meander eternally and EUR/USD-like, in sideways triangles for the rest of its existence? The chart seems to indicate new all time highs are possible, but in the end it will be up to the market to decide its fate.
Having mentioned the EUR/USD, it is worth pointing out an important lesson this forex pair teaches us about the supposed forces that act upon price.
It is common for market commentators to attribute price action to news releases or external events. For example, “Bitcoin Crashes on China Ban“. However, a rational consideration of market behavior shows that it is neither the news itself nor its face-value positivity/negativity that induces a price move. Rather, it is the general market’s collective mood that uses news as a flag event to signal collective buying and selling.
So, with the EUR/USD, and its reaction to war, one can find various crashes and rallies sparked by major wars in the past 20 years. In some instances, the market buys Euros and sells Dollars in reaction to the outbreak of war, and vice versa in other circumstances – but the material fact of war remains the same.
Hence, a rational conclusion seems to be that news or fundamental facts in themselves do not have a predetermined or repeatable effect on price direction. Instead, the common factor is the buyers and sellers that comprise “the market”, who will buy or sell bitcoin based on the collective psychology that uses news as a catalyst for premeditated action rather than a determinant of direction.
In this view of market behavior, it is feasible that the next piece of “negative” news out of China or the US, for example, ignites a rally of several hundred dollars in the BTC/USD price.
Due to still suffering from a “fiat mentality”, market participants crave approval and decree from the same authorities which they ordinarily despise. However, readers should remember that Bitcoin, by design, does not require the approval or say-so of politicians and bankers to fulfill its destiny – in the same way the lion does not require the gazelle’s approval to hunt.
When a central bank, therefore, makes some announcement regarding cryptocurrency, it has no fundamental bearing what-so-ever (null) on the future of Bitcoin or its task of mounting the central banks. Yet, ironically, the market projects ultimate significance onto regulatory “news” according to the mindset it currently holds, en masse.
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. Please take care and only buy or sell when you are 100% sure of the outcome. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this article.
Last modified: July 12, 2015 10:40 UTC