I believe digital currencies incorporate future events in the same way stocks do, the release of earnings or the introduction of a new product will be reflected in pricing in many stocks 90 to 180 days before earnings are released or a new product generates sales, and the share price will reflect future events. Digital currencies are doing the same thing here anticipating chaos in front of the August 1 decision about a bitcoin hard or soft fork. The recent sell-off in nearly all DC’s have priced in the results of the August events in advance, and I think prices have already endured the worst and should stabilize after some initial Aug 1 (day of) volatility. I think the fork is already priced into the market.
The hardfork/softfork issue is attempting to resolve normal growth issues related to slow trade rates. The only way for this particular problem to be solved is by increasing the dimensions of their present blockchain. Doing this requires modification of this code. This is the point where the Bitcoin fork comes into play.
I want to stay away from describing the debate between developers, in my mind the result of the hard or softfork will be reflected in pricing, and the adoption rate, and I believe nothing can really stop the juggernaut we know as the current digital currency movement, all growing emerging markets experience execution issues, and this is not unique to digital currency. Commodity markets operated in trading pits using “open outcry” before adopting technology fully. So this is an expected blip, and there will be more. markets climb the wall of worry, and digital currency volatility is a reflection of uncertainty.
Technical Support and Resistance Tells a Better Story
The recent decline in digital currency (let’s use Ethereum) showed a sharp sell-off that held all technical support levels. The chart below shows a normal orderly retracement for the price action. You can see the market moving quickly higher from $18 to $408 and retracing to $170. This is a normal 62% retrace. This simple math tells much about the price direction, and traders and investors get lost in the volatility.
The question will be how the support levels hold after the August 1st event, and if the $166 price is violated. Keep in mind, that this price level violation means you would need multiple closing below that $166, not an intraday spike lower, but a high volume sell-off with a clear busting of the support.
As mentioned I believe the concern about the fork has already tested the market, and we expect on August 1 we will have unusual trading action, but today, as I look at markets, they have the longer-term trend intact and have sorted the confusion about softfork or hardfork for bitcoin, technically analysis of historical price action solves many of these questions. My thoughts are, that we will look back the anticipation of the August 1 event and realize the digital currency markets have other concerns about adoption.
This Has All Happened Before
Growth fatigue has plagued all markets historically from the commodity markets to equities, and digital currency is experiencing the normal pain that comes with growth. I believe the juggernaut will continue once this is behind us and the global adoption of digital currency continues its path to higher prices for select coins like Ethereum.
My thoughts are we will look back the anticipation of the August 1 event and realize the digital currency markets have other concerns about adoption.
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