Posted in: Older News
March 23, 2014 3:23 PM UTC

Bitcoin Price May Be Technical

There may be some words of encouragement for those wondering why the price of Bitcoin seems to keep falling.  In fact, if we look at the Bitcoin price chart using a longer time frame and the logarithmic scale we can see the price bounded by…

There may be some words of encouragement for those wondering why the price of Bitcoin seems to keep falling.  In fact, if we look at the Bitcoin price chart using a longer time frame and the logarithmic scale we can see the price bounded by some lines called support and resistance.  Looking at the long term chart we see that Bitcoin price is bounded from above and below by the long term up channel.

Bitcoin Price is bounded by support and resistance lines


If we zoom into the top of this chart we can see a close up of the downtrend line that creates upward resistance:

Upward resistance ‘pushing’ price down

Some may argue that news has been the cause of price movements.  This is especially true because we always look to the news as the cause of each and every movement in price.  There is always a good debate about what determines price the news or technical factors.  Some traders are purely technical while others prefer to use news and fundamentals.

Technical traders can sometimes make price predictions with some accuracy, and interestingly news often follows their predictions.  Somehow the technical traders are able to see in the price what is going to happen next.  This may not be as impossible as it sounds.  The first reason is that insiders already knew the news.  That is the news was in the price.  Often insiders know something and trade based on it.  A common scenario would be they know good news is coming out.  In this case, they would drive price downwards and then before the news comes out start buying.  Finally, after price goes up they then sell.  Technical traders might be seeing into these sorts of behaviors.

There is another phenomenon that also happens.  In this case, the market may be, for example, in an uptrend.  In this case, the most terrifying and miserable news might come out, and nothing happens price just goes sideways, and the slightest positive news will drive the price to new heights.  Conversely, when the market is bearish positive news will have little effect and negative news even a false rumor will result in price declines.  If you listen to the analysis of price movements it always sounds like perfect cause and effect.   Price went down because such and such happened, or price went up because…  While, in fact, this is nearly as illogical as superstitious reasoning.  What may be going on is a bull or bear market, and technical traders know this which is why they look at technical’s.

Bitcoin may be in a bear market phase

Like it or not, Bitcoin is now in a Bear market phase.  This phase is due to break at any time, but we cannot guess exactly when.   Consider the fact lots of good news has been coming out.  It looks more and more like Bitcoin will be adopted nearly everywhere.   There have been reports of many Bitcoin ATMs going into service, promising technologies such as multiple signatures and so on, but none of that seems to be affecting price that much, but look at how much a false rumor about the Bank of China affected price even after it was reported that the rumor was false.  The fact is we are simply in a bear market phase.  Assigning news as the reason for declines is just making a false assumption.

When will the ‘bear market phase’ be broken?  Again we can look to technical’s for guidance.  Most likely the bear market will end at the precise moment Bitcoin price touches the lower line on the exponential chart.  (In reality we say it is over when we start getting higher highs and lows)  But the bottom may be formed when we hit, or just after we hit the lower trend line.  There should also be some psychological factors that correspond with this.  Look for the bottom of the market to happen when everyone is bearish, and panic is at a maximum.  Note carefully, that this means to buy at exactly the moment everyone wants to sell.  There is a physical reason for this and that is that the market hits its minimum when everyone who can sell already has.

From a fundamental perspective, I would argue Bitcoin is still looking good.  The reason is that we have continued adoption.  Businesses continue to invest in Bitcoin and transactions continue to increase.  The threats to Bitcoin are threefold:  First, the smaller cryptos may ‘steal’ its market cap, secondly the world might somehow make it illegal, and thirdly there may be some way to bring down the network.   All three scenarios seem somewhat unlikely.  The smaller cryptos seem to depend on Bitcoin and consumers will always see Bitcoin as the first.  The world cannot make Bitcoin illegal unless it becomes like North Korea and bans the internet.  And finally, the Bitcoin protocol has been tried and tested and only gets more robust with continued improvements.   Interestingly, note how the mainstream complaints and arguments don’t even fit a rational consideration of its value.   Bitcoin is the best transactional currency, and this is where it has its value.

Look for a touch on the lower support line as the time to enter the market.

I should also mention that we are due a change in direction based on the length of time since the last peak.  In fact we are the normal distance from peak to trough as I mentioned in another article.  In that article I was a bit more bullish and price did immediately go up.  Now I think we are headed for an encounter, at some point, with the channel bottom, though that could even occur at a higher price as the channel is going upwards.

Last modified: January 10, 2020 2:39 PM UTC

Jonas Borchgrevink @JonasBorch

Founder of and Passionate about how technology can empower people to create a more just and sustainable world.

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