November 12 Updated Post
Bitcoin Current Trend Status:
PRIMARY TERM TREND: Bullish in a confirmed uptrend
INTERMEDIATE TERM TREND: Neutral to bearish cultivating a correction pattern
NEAR TERM TREND: Bearish
So far, our Sell Alert on Bitcoin where we sold 50% of our $BTC allocation @ the $7k area has played out in our favor. We're looking for our reentry. It will inevitably come just like it has in all the previous down moves. We will have plenty of time to get long in a big way when that time comes. For now however, we're very likely going to be selling the rest of our position any moment...or we may decide to hold through this down move if the technical setup can dramatically improve.
However, let's discuss why we expect this current correction on Bitcoin is likely "different" than the last 2 major corrections we've seen on Bitcoin. Actually, this year alone, Bitcoin has gone through 4 major pullbacks in 2017. From peak to trough we had the following correction periods on Bitcoin:
First off, this most recent pullback is very likely not over yet...as we believe this is still unfolding.
There's more than a few reasons why we'll likely see a breach lower than a -41% correction from peak to trough on this current down-move. We'll get into that in a moment.
So in our last Member alert we discussed that Bitcoin was very likely going to reach towards the $5500 level and that would be a strong area of support that we distinguished as the "reload zone." We indeed did get a tag in that area and then a strong bounce back up the $6480 area. However, there is a distinct reason why we didn't take that buy position when Bitcoin reached the $5500 area....we were not yet convinced the bottom was in. We didn't get a clear enough reversal signal. A bounce is just a bounce. We need to see bottoming pattern that has legs to stand on. Look at like this ...Bitcoin itself is not convinced the buy was authentic...after seeing such a large scale sell off from that top range, the move down was stronger than any other day that catalyzed the last 4 corrections. The bearish engulfing bar that occurred in that top range was larger in scale than any other correction top. This depth of this bearish engulfing bar communicates sentiment & big money dumpage. Notice the red highlighted rectangle on the chart. This is scaled in size to the bear bar that just occurred on November 10th. Now let's take that size and compare it to the last 2 corrections:
So the power of this down move is being catalyzed by a force larger than any of the previous corrections. Let's assume that much. What this tends to mean is that the opposite force required to reverse the downtrend will need to be a a strong enough bottoming pattern that is formidable contender worthy to reverse the downside damage. Sometimes it can happen in key reversal day, in fact...we've see Bitcoin reverse downtrends on 1 key bull day that marked the bottom. So we're not unaware by any stretch how capable & strong bitcoin is at bottoming in short order. It bottoms quicker than most stocks do. It's lack of available supply and finite amount of coins behaviorally makes Bitcoin a very scarce asset class. In truth, much of bitcoins rapid price appreciation over the last year is due in part to the lack of supply. There simply isn't enough of Bitcoins to be mined fast enough to fill demand. So we're aware why and how Bitcoin can end corrections on the flip of a switch. However, that doesn't mean that Bitcoin can't fall deeper than a -40% to -50% correction on that thesis alone. It certainly still can.
Here's how this next pullback is likely going to go. This is important to be aware of as we anticipate & model forwards. We're likely going to see one of the following setups cultivate here:
1) HIGHER LOW:
Bitcoin retests the $5500 level and falls short of it's last low and bounces higher
2) DOUBLE BOTTOM "W" FORMATION:
Bitcoin tags right near if not identical to the $5511 area and then creates a "W" pattern to build up the energy to rip higher from there.
3) DEEPER CAPITULATION LOW:
Bitcoin breaches below the $5500 area which would induce fear & anxiety causing a rapid new leg lower....which would very likely mark the ultimate bottom
More importantly to always remember here....the market is designed to fool most people, most of the time. So this is largely why we think Bitcoin will have another leg lower.
What we're looking for here is a bounce somewhere back around the $6300 area ...which falls short of the prior bounce of the $6480 area and then fools more people to get long... and then likely see a big whale dump which pulls Bitcoin back to retest that $5500 area. From there, we'll be watching to see how strong the interest is Observing the quality of the move up & down here in this whole area is essential in helping guide our next reentry. A bounce up on low volume followed by a move down on heavy volume....for example...are tale-tale signs of what's likely in store. Beyond observing price action & volume alone, the momentum oscillators on Bitcoin right now suggest there is more puking to go through, before this downtrend can tire out. Momentum is to the downside at the moment. Any near-term bounces here are likely suspicious until proven otherwise.
Ok so how far can Bitcoin go down...what are the likely areas where we'd start to see the value proposition shift to more upside risk than downside risk. There are more than a few approaches to forecast the potential for a downside move. For now we'll just focus on 2 main ones:
1) Mirror Performance: is based on the historical pullback depths that prior moves have underwent. Although, past performance does not guarantee the behavior of future performance....the axiom that history repeats itself is one that still holds value. We do see over and over again that history does indeed repeat itself, not per say exactly but gives you a reference for what's possible.
2) Fibonacci Retracement Levels: Fibonacci analysis is a technical classic that's predicated on mathematical markers that recurringly continue to show up in the nature of stock & crypto markets where those markers identify a certain percentage of the rally that is given back or retraced to. Like if a stock runs from $100/share to $200/share, a common marker value known as 50% Fib means that stock is likely to eventually retrace 50% of the rally which would bring the stock to $150 per share. So, there's a set of values where those pullbacks tends to gravitate towards more often than not. It's not based on the reading of tea leaves by any stretch. Fibonacci value levels continuously shows up in spades in both stocks and coins, however...the values that do hit more often are slightly different in stocks than in crypto. We'll not get into that for now but rather just acknowledge where the most common value points of retracement have usually been on Bitcoin in particular. In all of the past bitcoin pullbacks, the mot common retracmenets levels have always been
For comparative reference, from peak to trough, Bitcoin has so far pulled back to a low point of $5511 which represents a -30.22% pullback. If Bitcoin mirrored the June & September correction which were both about a ~ -40% correction...then Bitcoin would need to come down to the $4700 area. Take a look:
Ok and now let's look at the Fib retracement levels. Since the beginning of the year, Bitcoin has *always* pulledback and hit the Fib retracement value of 50%. So how we calculate this is very simple...we take the last pivot low of $2975 and the preceding rally up to $7898...So that was the entire rally thus far....a 50% retracement of that rally would bring bitcoin down to around $5430 area. Seeing as how we just recently visited the $5511 area...breaching a little lower to the $5430 are is not out of the realm of possibility by any stretch.
We expect whatever bounce that occurs here to fizzle out, and for Bitcoin to see lower prices before a firm bottom can be fleshed out. If we're wrong, then great, we'll gladly pivot accordingly based on the technical data that shows up when it does. For now, our forecast is to wait for lower prices before we can rebuild our long entry.
We'll update you all soon enough as this unfolds.
November 11, 2017 Post
As I am writing this post, Bitcoin Cash surpassed Ether and became the #2 most valuable cryptocurrency, with a price of $2,380 and market cap of $40 billion. Mind you, Bitcoin reached this market cap only in May this year, after 7-8 years of existence and development.
During the last week, Bitcoin price was down 20% to around $6,000, and Ether price was up 2% to $306.
Alt coins were pumped for 2 days before going downhill again. This week was a perfect example that anything can happen in crypto.
Let us try our best to summarize the events that happened in the past week, in particular relating to Bitcoin / Bitcoin Cash:
On November 8, supporters of SegWit2x called it off, citing the lack of consensus. The original hard fork date was set to be November 16.
Capital flowed away from Bitcoin and into other coins because there were a lot of people who bought Bitcoin anticipating to receive the SegWit2x coin for free.
In particular, those who wanted a Bitcoin block size increase switched to Bitcoin Cash now that the SegWit2x chain is no longer.
Bitcoin Cash was endorsed by Bitcoin heavyweight such as Gavin Andresen, mainly because it is a better currency for medium of exchange.
Bitcoin Cash is also currently more profitable to mine than Bitcoin, causing some mining power to switch to Bitcoin Cash.
As a result, Bitcoin hashrate dropped by half, which means that it takes longer than the usual 10 minutes on average to generate a block, which slowed down transaction confirmation time.
As a result of 1) the drop in hashrate, and 2) the massive trading volume in the last few days, Bitcoin fees skyrocketed to over $10 on average and there are more than 150,000 unconfirmed transactions at the time of this writing.
Trading volume for Bitcoin Cash was over $9 billion in the past 24 hours, even higher than Bitcoin.
The parabolic move in Bitcoin Cash makes sense but probably very few people anticipated the level of the move. There is certainly a lot of speculation, but we believe the price movement also shows the concern that some people have on the Bitcoin scaling issue.
If Bitcoin Cash can maintain near these levels, some people will wonder which one is the real Bitcoin and this is not net good for Bitcoin’s branding.
It is very hard to see how this will play out, but we will do our best to bring the most informed and up-to-date information to you.
Underneath all of this, there is both a fundamental & political war occurring on Bitcoin vs Bitcoin Cash vs Hardfork X, Y, & the inevitable Z. To really understand the nuts and bolts of this war, it requires a deeper context into addressing the scaling issues that Bitcoin is having, relative to the influences behind it. We have not yet formed a definitive stance on which will prevail. For now, our bet is firmly on Bitcoin as it's infrastructural integration is far superior than any other crypto or alt coin out there. The pairing mechanism alone for anyone to be able to buy any of the alt coins is largely pegged to first owning Bitcoin and then with that bitcoin can you then buy said alt coin. When you sell said coin you're selling it back into Bitcoin itself. Lately there have been more pairing mechanisms such as ETH, LTC, DASH, and even XMR monero. But the common domination is always Bitcoin. Like it's never the situation that you can only buy said alt coin with just ETH....It's always Bitcoin & then maybe ETH or another. Bitcoin is first. Also...there are no ETH or DASH atms, the only cryptocurrency ATMS that currently exist are Bitcoin. Japan's legalization of Bitcoin is also market adopted throughout more than 300,000 POS (point of sale) systems across a growing adoption of merchants/vendors/stores in Japan. They're not accepting Bitcoin Cash, they're accepting Bitcoin.
So the infrastructural piping for crypto is very strongly integrated with Bitcoin. However, there is a strong libertarian consensus among many that Bitcoin latest August 1st hard fork that birthed Bitcoin Cash was a hijack of sorts as strong party of thought leaders and cryptoenthusiasts are saying that Bitcoin Cash is the original Bitcoin and that the Bitcoin brand as you know it is the forked version from the original Bitcoin. Let's back up a second, in a hard fork of a coin, what happens is there is a disagreement on the direction of how the project should flourish and so this causes a fork in the road. By traditional interpretation the new fork in the road is what's given a new name designation....like Ethereum Classic of Ethereum was the revised version of Ethereum. However in the case of Bitcoin Cash, many are arguing that this is the true form of Bitcoin's original white paper as was laid out by Satoshi Nakamoto, and that mining influencers had the lion share decision in being able to keep Bitcoin's original name yet it was that core technology that was implemented with Segwit 2x. Whereas Bitcoin Cash takes the same approach to Bitcoin's original white paper which is the increase the block size on an as needed basis relative to traffic.
We are still fleshing out what's what ourselves for that matter. In the meantime we're making no change to our Bitcoin bull thesis. There are issues with Bitcoin's current scaling protocols as of now. The fees for Bitcoin have been increasing and becoming more unfriendly to use. We agree with Roger Ver sentiment around utility & usefulness.
We agree that there is bastardization occurring around Bitcoin. But it's not necessarily the truth, but the perception of that truth which ends up winning the hearts & minds of people. And so there is a strong PR agenda on both sides of both Bitcoin Cash & Bitcoin to win that branding message with the community. Either way, we will always look to the best we can to be as objective as possible. We're still digging further. Until then, our focus is squarely on exposure to Bitcoin. We will consider a long position on Bitcoin Cash due to the technical bullish uptrend that $BCH has inarguably cultivated.
In the meantime, if you'd appreciate a great debate on some of the Bitcoin Cash highlights, I encourage you to watch this debate between Roger Ver (ceo of Bitcoin.com & Bitcoin Cash Backer) & Richard
Further reading on Roger Ver's claim that Bitcoin Cash is Bitcoin https://www.bitcoin.com/info/bitcoin-cash-is-bitcoin