Bitcoin is the toast of the town, with prices closing in on the five-figure mark. At current prices, the rally has covered a huge distance in 2017. On January 1 of this year, bitcoin opened trading at $973.37. From there, to today’s intraday highs of $9749, bitcoin has returned an astounding 901.57% for its investors. While the forecasters are quoting huge numbers for the future, we believe that at the current prices, the risk to reward ratio is skewed to the downside in the short-term.
- Bitcoin’s rally is gaining momentum
- Experts are competing against each other in putting a huge target for bitcoin
- We believe the current leg is led by the newcomers who are in for a quick buck
- Markets are overextended in the short-term and a correction is likely
- We expect the next fall to be about 30% from the highs
But, just because an asset class has risen quickly is no sign that it will fall. True. There are a few sentimental factors and a few technical factors that have led us to arrive at our conclusion.
We are not calling an end to the long-term rally
First, let us make it clear that we are not calling an end to the long-term rally yet. Calling a long-term top is a futile exercise, especially for a new technology like blockchain. Many forecasters have bitten the dust in calling a top in Amazon for about two decades. So, we shall not get into that exercise.
However, we are calling a short-term top in bitcoin.
Exuberance is usually the final stage of the rally. Pick up any news on any cryptocurrency website and you will find forecasters dishing out astronomical numbers for bitcoin.
Agreed, there have been many recent developments across the globe that favor the blockchain technology and the existing cryptocurrencies. However, most experts in the field only talk about huge numbers without any caution about the volatility or a possible fall. Investors are being made to believe that the only way for bitcoin is up.
In a recent survey by LendEDU, a marketplace of private loans, bitcoin investors said that they will sell their positions if bitcoin neared $200,000 levels. While anything is possible in the markets, a price point that huge is unlikely to be reached within the next few years.
Such figures and astronomical targets are attracting new investors who are entering into cryptocurrency trading to make a quick buck.
Bitcoin futures trading by CBOE can be both good and bad
While most of the mainstream Wall Street has stayed away from bitcoin, it is unlikely that the introduction of bitcoin futures trading by the CBOE is going to lead to a stampede for initiating long positions.
Contrarily, we believe that few short sellers are likely to enter the fray and test the resolve of the bulls on the upside. At least for the first few days, after bitcoin futures trading starts, we may see an increase in volatility.
If the big players of Wall Street with deep pockets are able to overpower the bulls, then a fall is likely.
The chart structure points to at least a 30% correction
The reasons mentioned above are regarding trader psychology and they are debatable. Most of the die-hard bitcoin supporters are likely to put those to trash.
Hence, we put forth our finding from the charts that suggests a likelihood of a fall.
We have picked up the short-term tops in bitcoin in 2017 for our analysis. We have disregarded the dips that were arrested at the 20-day EMA and we have not considered the dips that happened without a material rally.
We have considered the intraday highs on the day bitcoin topped. For that day, we also took the value of the 50-day simple moving average.
We find that, all the short-term tops in the markets have started when the percentage difference between the price of bitcoin and the 50-day SMA was in the range of 35% to 39%.
The ensuing correction in the first three instances saw a dip of about 40%. The fourth and the most recent correction, however, was shallower at 30%.
|Date||Intraday high||50-day SMA||Price above 50-day SMA in %||Ensuing correction in %|
|01||January 05, 2017||1175||821.75||35.38||37.47|
|02||June 12, 2017||2999.99||2014.18||39.32||41.39|
|03||September 02, 2017||4980||3461.14||35.98||40.26|
|04||November 08, 2017||7898||5330.04||38.82||30.22|
|05||November 27, 2017||9749||6694.14||37.15||?|
As of November 27, the difference between the intraday high of $9749 and the 50-day SMA value of 6694.14 has already reached 37.15%. This difference is closing in on the higher end of the percentage value, which has led to a correction in the past.
Even if we take the minimum correction following the top, we shall see a 30% correction, which will sink bitcoin to around $7000 levels.
Risks to our assumption
We have assumed that the market participants are in a euphoric state, however, this is difficult to gauge. If the markets are only in the optimism stage of the bull run, it still has a long way to go.
We have taken the performance of bitcoin only in 2017. This is a small sample size. The current rally may just continue higher without giving a meaningful pullback.
While the debate on the valuation is never-ending, we believe that the current pace of ascent is looking euphoric in nature. As the proponents have benefitted by holding through every dip, there is a sense of security among the buyers that no matter what, price of bitcoin can and will only go up.
We believe that even if bitcoin has to rise, it will break this notion and test the long-term investors before embarking on a long-term uptrend. We, therefore, recommend trimming long positions in bitcoin in phases, instead of selling all at once. We expect a short-term top around the $10,000 mark. We believe the investors can buy bitcoin at lower prices in the next few weeks.
Featured image courtesy of Shutterstock.
Long-Term Cryptocurrency Analysis: All Majors Stretched as Ripple Finally Breaks-Out
Although the previous leaders of the rally started to correct or at least consolidate in the wake of the overbought long-term setups, another batch of coins turned exponential, with Litecoin, Ripple, and Ethereum all registering lofty gains this week. Bitcoin, Monero, and Dash have been holding up well, and even drifted to new marginal highs during the period, while Ethereum Classic had a more volatile week, before moving to new highs today.
XRP left the broad trading range that has dominated its market since May, and surged to new all-time highs while almost quadrupling in the process. As the coin was the only major on a long-term buy signal according to our trend model, and the move triggered a sell signal on Thursday, now all of our tracked coins are on sell signals.
Ripple could be in for further short-term gains but long-term investors should reduce their positions after this week’s spike. Support levels are found Major at the prior high near $0.4250 and in the $0.30-$0.32 range.
XRP/USDT, Daily Chart Analysis
IOTA, which has been leading the market higher before is down by more than 30% off its all-time high, but given the exponential move before, an even deeper correction is likely in the coming weeks, and investors should wait until a more favorable setup to add to their positions. Strong support is only found at $3 and $1.5, but potential Fibonacci support is at $2.35.
IOT/USD, Daily Chart Analysis
Let’s see how the long-term charts of the other majors look this weekend.
Technical Analysis: Bitcoin Up Again as Altcoins Mixed in Volatile Trading
Bitcoin is at a new all-time high today, although the momentum of today’s move is far below from what we saw recently, and the coin only managed to reach a marginal record high yet again. BTC is now worth $300 billion, and it is still trading right at the short-term trendline, inside a rising wedge pattern that shows a clear momentum divergence.
With the short-term trend still being intact further gains are still possible, but as all the majors are overbought from a long-term perspective, we still advise investors to wait for a better buying opportunity before adding to their holdings. Primary support is still found near $13,000, with further levels at $11,300, $10,000, $9000, and stronger levels at $8200 and $7700.
BTC/USD, 4-Hour Chart Analysis
XRP entered a volatile short-term correction after its two-day surge after giving a short-term sell signal yesterday, and the coin spiked back towards $0.60 before settling down just below yesterday’s highs. The long-term setup also turned overbought thanks to the almost 300% rally, and now investors should reduce their holdings, even as further gains are still possible. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.
XRP/USDT, 4-Hour Chart Analysis
Cryptocurrency Analysis: Ripple Continues Rampage as Litecoin and Ethereum Enter Correction
Ripple remained in the center of attention in the segment after breaking out to a new all-time high yesterday, and the coin almost doubled in value, climbing above the $0.80 level. The currency concluded a 6-month long consolidation pattern with the move after being the only major on a long-term buy signal in our trend model.
XRP gave a short-term sell signal today, while turning neutral regarding the long-term setup. Investors now shouldn’t add to their positions, although further gains are still possible, and reducing holdings somewhat is a good idea here. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.
XRP/USDT, 4-Hour Chart Analysis
While Bitcoin stagnated, and Bitcoin Cash jumped, Ethereum, Litecoin, Dash, and IOTA has been drifting slightly lower, although the recent gains are still mostly intact, and the basic setup in the segment is unchanged.
Litecoin fell below the $300 level after yesterday’s consolidation, and the coin faced strong selling pressure in the latter half of the session. The currency remains extremely stretched regarding the long-term momentum indicators, and although the short-term uptrend is still intact, a deeper correction is likely in the coming weeks, with key support levels found at $125 and $100, and weaker levels at $260 and $170.
LTC/USD, 4-Hour Chart Analysis
- Trade Recommendation: IOTA December 17, 2017
- ICO Review: Rentberry December 17, 2017
- Trade Recommendation: Ethereum December 16, 2017
- Long-Term Cryptocurrency Analysis: All Majors Stretched as Ripple Finally Breaks-Out December 16, 2017
- Trade Recommendation: OMNI/BTC Range Trade December 16, 2017
- Trade Recommendation: NEM December 16, 2017
- Risks abound with Ethereum and its Application Developers December 16, 2017
- Technical Analysis: Bitcoin Up Again as Altcoins Mixed in Volatile Trading December 15, 2017
- Trade Recommendation: MaidSafeCoin/Bitcoin Bounce Play December 15, 2017
- Trading recommendation: Lisk/Bitcoin December 15, 2017
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