Bitcoin Price: Ready to Rally?

March 6, 2014 06:22 UTC

The Channel Low

In my previous CryptoCoaster video, I forecast that an extreme negative case would see Bitcoin price reach the long-term channel low. The following weekly logarithmic chart shows that this scenario has played out with some precision, the channel low and previous double bottom were a likely point for reversal:

Weekly logarithmic chart showing Fibonacci channel and support. The Gox Bitcoin price is now history.

While I considered such a move unlikely, this was before the fatal nature of Mt. Gox’s situation came to light. I’d long considered Gox to be sketchy and tried to highlight this by broadcasting their disturbing divergence from the average Bitcoin price. In retrospect, I should have done more to warn people, in clearer terms.

At the time, it seemed that those with money in Gox were only too happy with their $200 premium bitcoins. Many got defensive when the situation was called into question, as Gox was still a respected institution despite its difficulties. What a difference a month makes.

In the interim, I haven’t been trading. I consider all Bitcoin exchanges to be slightly sketchy at this point. I’d rather skip the inherent risks of centralised exchanges, preferring to hold my coin or invest a portion in good projects. Hopefully I won’t have too long a wait before decentralised exchanges and / or higher standards make daytrading a worthwhile proposition again.

Awaiting a Breakout

Technical analysis remains a good tool to determine longer term entries and exits. From the following chart, I believe that anyone who got in at or below ~$560 is on the right side of risk:.

Bitstamp Daily, showing a bullish flag pattern with good volume, plus a rising MACD. A longterm down-line looms overhead as the 50% Fib is tested.

As the Gox wreckage is cleared from the runway, the market now has a clear path to takeoff. A breakout from that bull flag through the 50% Fib, then a push through the downtrend sketched from the all time highs – that’d be bullish indeed. Above the last major high around $1000 and we’ll really be off to the races.

Still, I think any such uptrend will take time to develop. Bitcoin ardour has cooled in the hearts of many, who’ll need some convincing before we get a fresh uptrend. This might take good, tangible news, it might take sustained higher prices or just time. Probably a combination of all three.

That said, exchanges are now under the magnifying glass and any cracks are likely to be noticed. Huobi’s volume, for instance, remains ridiculous compared to other exchanges. If they are indeed fudging it, that’s rather unethical but probably doesn’t signal deeper problems. Similarly, the Bitcoin Foundation (often confused by the media as the company behind Bitcoin) needs to shape up to withstand increased criticism and scrutiny.

As always, stay frosty and ready for anything. [Update: including the possible revelation of Satoshi’s identity… Didn’t see that one coming!]

Image courtesy of Brainless Tales. At least I hope they’ll be courteous about me nicking it.

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Last modified: March 6, 2014 14:50 UTC

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