Categories: Bitcoin Business

Bitcoin On The Launch Pad Or The Cliff Edge?

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Bitcoin is a speculator’s dream. Not just because it is an opportunity to make a lot of money if you can call it right, but because it has so much opportunity for pure technical analysis.

The bitcoin chart over two years

The more efficient a market gets the less useful technical analysis becomes, because market efficiency’s annoying twin is market randomness. The more efficient a market, the more random it becomes and generally long developed markets are very efficient, unlike new ones like Bitcoin. There are many levels of random and it is a fabulous subject to study, but it is not often the traders’ friend.

So we have this great set up, one that looks like a replay of the Nasdaq since 2000, just accelerated.

Bears say, “You’ve just had your echo rally of the Bitcoin bubble, this is like the commodity market of the 1970s. This run is done. We are going down, down, down.”

Bulls will say, “Hey, we are on the way to more than $20,000. Onwards to the moon.”

I’m a "moonist," I am slightly ashamed to say. In general, in markets, this tack never pays off, except when it does and then it really does. For every Apple there are 1,000 pump/crash bubbles. If you can spot the odd "moon shot" among the plethora of fails, you can make a lot of money. It is not an easy task. So as a Bitcoin moonist I feel like a rich old cynic falling for a pretty lover: prone to ridicule, a broken heart and larceny, failing after so many years of bitter realism to stay on the gritty path of righteousness.

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So we are at the crossroads again for the bitcoin price. How to play this?

First, where are we at: Fundamentally this run is driven by Trump and his crises, China and Iran, plus a sprinkle of Hong Kong troubles.

Escalation means up for bitcoin (BTC), resolution means down.

Technically we can see that bitcoin is slowly establishing the current levels as an equilibrium price. The range is still impossibly wild to predict direction, but the key thing is the trend and the volatility.

Here are the last 3 trends:

The last 3 trends on the Bitcoin chart

We can see from this that there is a sweet spot between 10,000 and 12,000 where the market is trying to set a price for BTC with all available information yanking that value around dramatically.

If this is a "good price" for bitcoin, the volatility will die off reaching the sort of volatility level you can see back in March.

Without a dramatic change in the drivers of bitcoin’s price, this calm will occur and that will set up the conditions for the bull/bear move that will follow.

While you can now say if BTC goes up much past $14,000, it will go to $20,000 and if it falls under $9,000 by much, it will go to $4,000, that is not much help. As the range tightens as volatility drops, this triggering range will narrow giving us a much less risky set of signals. We must wait to see if that develops rather than there being a sudden unpredictable move.

This is what the moonists see unfolding:

The optimist's prediction for the bitcoin price

It absolutely can happen, but like the jilted broken-hearted billionaire, make sure you have a bitcoin prenup in place to make sure being wrong doesn’t wipe you out. That too, can absolutely happen.

The key with winning in high reward situations is controlling your risk as much as possible. Otherwise even if you are right the vast majority of the time, you will lose horribly.

If you are risk adverse, this is not the game for you.

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Clem Chambers is the CEO of private investors websiteADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide.

Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.

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