This daily chart (price data courtesy of Bitcoin Wisdom) shows Bitcoin priced in USD over the Mt. Gox exchange. A clear double top pattern emphasises the high at $1250, where motivated sellers lurk. A break above this level and Bitcoin is back to the races.
Following a weekend of initially unsettling news out of China (plus a little trash-talk from Alan “dot-com bubble” Greenspam), a big red candle reveals significant profit-taking after Bitcoin’s tremendous run-up from the “Silk Road seizure” low of $109.
Taking DPR’s early, ugly October as our most recent low – and also as a clear signal to investors / speculators that Bitcoin’s value was largely independant of its infamous “seed market” – we draw a Fibonacci retracement up to the highs. These Fibonacci levels may seem arbitrary but price often exhibits a surprisingly magnetic attraction to them. In combination with established Support/Resistance levels, moving averages, large round numbers and other significant info or patterns, they’re a handy aid to the voodoo science of charting.
So, the Fib levels reveal some possible support levels; where we might expect the price to bounce or at least hesitate – if indeed the sell-off continues through next week. Fibs are especially useful here as we’re mostly charting “blue sky territory” without established S/R levels or intact trendlines.
As I write, a short green candle dithers just above the 50% retracement line on low volume. This could be the “dead cat bounce” before the bleeding continues, or the start of a possible reversal (of the reversal). As always, hindsight is easy but the “hard right edge” of the chart remains problematic…
A bit further down, we have the 61.8% level. What’s interesting at this level (around $550 in price terms) is that when broken to the upside in mid-November, price ignited into a rocket ride – that huge green candle. A lot of people clearly thought the top of that candle, $800, was the “blow-off top” culmination of the post-Silk Road run-up… But then the second wave of buyers took us up to fresh highs.
Anyway, if we continue down, my ideal point to buy in would be the 78.6% level around $375. This would be a very serious retracement, indicative of most new entrants losing faith in Bitcoin and I consider it unlikely. Historically, price clearly struggled for 4 or 5 days to break through resistance at this level, and often such resistance levels become support once broken. The confluence of this S/R line with the 78.6% level would be my best guess at where Bitcoin will bottom out in a worst case “crash” scenario. A fall back below $375 would attract tremendously negative press coverage, and I think those deeply invested in Bitcoin, with deep pockets to match, would fight such a precipitous drop tooth and nail.
Best case scenario: the positive news out of the UK (exchanges are no longer burdened by a 20% tax on Bitcoin transactions, as documented elsewhere on this site) sees us right back up to test the highs in the coming week.
Likely case: after all this frantic action, the Bitcoin price takes a short breather as market particpants pause to reflect on likely true value and consider future developments. We could churn around the 23.6% and 61.8% levels for a while, barring major developments. In my view, Bitcoin’s long-term potential remains tremendous and undimmed, so I’ll be looking to pick up bargains if we see any further downside.
Finally, it’s worth noting that sentiment is currently
balanced between bulls and bears edit: very bullish, at least as measured by the Predictious prediction market. Such prediction markets, as predicted by early cypherpunks and now better-enabled by cryptocurrency, are themselves worthy of further investigation by crypto enthusiasts…
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Last modified (UTC): December 19, 2013 19:31