Where next for Bitcoin?


Jason Sen

Bitcoin hit the mainstream news throughout last year. From a low of $752 in January the price rocketed over the next five months reaching $2980 in June. I along with many others missed out on this meteoric rise. I thought, there’s no way I’m buying at these high prices. Little did I know that the party had barely begun.

From July, there was almost panic-buying from a low of $1830. The price soared to a peak of $19,666 by December, just five months later. A gain of 1074%.

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Big round numbers are often assumed to act as magnets and/or psychological barriers in financial markets. This certainly proved to be the case for Bitcoin with an all-time high just below $20,000 in December. In less than one week the price had collapsed by 43% to a low of $11,160. A stunning end to the Bitcoin story of 2017.

Anyone who is anyone in the world of financial markets has been expressing their opinion on this new phenomenon. The most recent being the world’s most famous and successful living investor. The Oracle of Omaha, Warren Buffett, said on Wednesday morning that the speculation in Bitcoin and other cryptocurrencies ‘will have a bad ending’.

Looking at the charts, it is entirely possible that the bad ending has already started. Since the 43% correction in the third week of December, the price has been unable to bounce back as it did through most of 2017.

The price action is starting to look heavy, with mostly sideways action before bulls tried a push higher in the first week of January to $17,160. This could not be sustained and the sellers quickly took advantage, erasing almost all the gains in half the time this week.

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Note how the purple 55-day moving average, in the daily chart above, worked so perfectly as support since the November low. It is significant therefore that we broke below this average this morning to test the 38.2% Fibonacci support at $12,850. This is an important level this week for other reasons as we can see in the shorter-term chart below.

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See how the price has been trading in a gently upward-sloping channel since the December correction, indicated by the pink trendlines. I think there is a strong chance this support around the $13,000 area will be broken before the end of the week.

The more important trend channel is the gently downward-sloping one, which started in the second week of December, indicated by the two purple trendlines. A break below $12,800 is likely to target the previous swing low at $12,050 and then the December correction low at $11,160. Obviously this level will be important and is imprinted in the minds of Bitcoin traders and investors.

Referring back to the daily chart above you will see that the purple 55-day moving average worked perfectly as a support level when tested on this correction last month. Now that we have traded below this moving average (already a negative signal), we can no longer rely on this support.

I see no reason, therefore, why we cannot break below $11,000. We would then test support at the blue 100-day moving average and four-month trendline at $10,200/10,150. We may initially get a knee-jerk reaction from this level but I do not see it as a strong enough area to buy into longs. I do see a strong chance the price will eventually break $10,000 to target the mid-$8000 area. If this happens I will re-examine the price action at that time.

For day traders, the key to Bitcoin’s direction is strong resistance at $15,400/500. Holding below here gives bears the upper hand, targeting $14,500/400. Below here look for $13,800/700 before yesterday’s low at $13,415.

Further losses would target $13,200/100. Below here look for $12,600/500. A break below $12,300 tests two-week lows at $12,050 before the three-week low at $11,160.

Bulls have been unable to gain control of this market despite a good attempt at the start of this week. Only a move above strong resistance at $15,400/500 is less negative. However, we need to stabilise above $16,400/500, at least, for the bull trend to resume.

A move above the recovery high of $17,300 would of course be encouraging. This would allow a further recovery towards the all-time high at $19,550/666. However, we still have the risk of a double top here. Long traders could panic out on the way to this resistance, seeing this as their last chance before a collapse. Bulls need a clean break above $20,000.

Jason Sen

Technical Analyst & Trader

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