Bitcoin and it’s crytpo-cousins
Parabolic Price action
Bitcoin and the like got interesting last spring. Like many others, I’m sure, I noted that the charts looked “parabolic.” That is, vertical price moves look like the front side of a shape that completes when price falls all the way back down to where it started.
The big question, of course, is if Bitcoin and friends will become currencies of major use, or if this is a flash in the pan. My guess had been the latter, for a few simple reasons I’ve stated for years, and will note below. But of course, I could be wrong about that, or anything.
I have some Facebook friends who were involved with bitcoin and other cryto-currencies since their inception. So, for one thing, they probably got suddenly dramatically wealthier a few months back. And for another thing, I saw the occasional post, breathlessly quoting pundits out-bidding each other, for the ultimate value of a bitcoin. Would it top at $10k, $100k…nay, $1million !
I saw articles poo-pooing the comparison with the Tulip bubble, and lauding the inherent usefulness of block-chain based digital currencies (triple entry accounting.)
Nevertheless, several of the hallmarks for a pop and flop were in place. Aside from the price action, when I heard about funds opening to allow people to invest their IRA in Bitcoin, I spied red flags.
Last week (June 14) I sent an email friends, noting the rapid peeling of price. I’ll just cut and paste those here, since they’re still relevant a few days later.
Bitcoin is coming down lately, on news.
This could be the pullback in this second wave (a buying opportunity) or a parabolic collapse.
The question now is, is Bitcoin here to stay, and get more useful, and so more valuable? Or is it a pop and flop, a Tulip thing?
The buy point on this pullback should be either a 50% or 61.8% retracement of the upwave.
It’s frustrating to not have it on my trading platform, so I could chart it. But we can McGyver those.
It’s also frustrating that it’s not easy to buy through something like a normal broker. I thought it was going to become a currency pair, BTC/USD. But I don’t see it yet.
Anyway, I can mimic it with a made-up chart, so that we can see the buy levels would be $1585, or $1256.
But if it gets all the way back there in the next couple of weeks, this chart looks pretty parabolic. It would be better if it got there by slowly drifting down over at least a few months.
In any case, we can see from an all time chart, that let me draw in a couple of levels, that there is really no support at $1585. At $1282, we do have a little support, from a Feb 2017 top, so that supports the 61.8% fib.
The stronger support is down at about $1150. If the $1256 level was going to hold, it would be nice to see it plunge down to almost exactly $1150, and bounce right back, violently, on the same day, or at least the same week.
If it holds below that level, I’d say the world was telling us something important about bitcoin and crypto currencies, and it’s probably going back down to $200 or $300, and then flatten out there.
If one was to buy there, in case bitcoin is going to revolutionize the world, and it goes to $10k, $100k! I would buy at the $1250ish area, and take profits along the way if it goes up.
One prudent place to take profit would be half of the down move, so $2000ish. Then more at all time highs, at $3000. If it holds above there, one would have to assess, and make guesses.
Regarding bitcoin fundamentals, I may be a simpleton. But it seems to me like the only chart that matters is actual transactions.
This chart isn’t even close to the explosive growth of the speculation price on bitcoins.
And I don’t know if speculative purchases of bitcoin are included in this chart. What we really want to know is, how quickly is the use of bitcoin growing for buying actual things?
When are you going to accept bitcoin for your product? When can I use it on Amazon?
I think the chance of bitcoin becoming a major world currency is remote. I can imagine so many forces against it.
1. anyone can make a new blockchain or digital currency, and they do, and are!
2. if we are going to end up using something like bitcoin instead of dollars, Amazon or Google would be in a much better position to launch it. They could probably guarantee transactions in dollars in order to support growth.
3. if not Amazon or Google, or in addition to, I would think governments and central banks will issue something related
4. if central banks for any reason feel threatened by bitcoin, they could easily crush it. Just buy it up like crazy…drive a real bubble on purpose, then crash it. Who knows, maybe that’s what’s happening now.
nevertheless, the technical buy point is where it is, and it’s worth a try, if it gets there. You’re risking a move of 10% against you, for potentially many multiples if it really is going to get big.
The fact that India sort of legitimized it, is a check in the bull column
July 16 update
The crypto crash has continued since I originally sent the technical analysis just a few days back. Bitcoin dipped below $1900 last night. It’s lost over a third of it’s value, very fast.
Etherium is even worse. From $50 to $388 in one month, then back down to $139 in one month. That is the definition of “parabolic.”
$185 ish is the 61.8% fib by my phone caluclation on Etherium. If it doesn’t bounce back to there quick, my guess is it’s toast.
The pace of the pop and flop leads me to suspect that these will not hold up. Bitcoin may bounce at $1250 as I suggested, but it might only get back to about $2100 or less, then fail again.
The most intriguing thing about the new ICOs (Initial coin offerings) is using them in lieu of stocks to raise money for early stage companies.
It seems to me that could become something important (or not.) I don’t have a strong opinion, but it’s interesting.
Bitcoin as an asset
Another thought that made me go, hm:
When people buy Bitcoin, it’s as if a new asset was created in the world. When someone digs up some gold, or builds a new house, there is literally more valuable stuff in the world. It’s not just that the stuff that already exists is getting more valuable (inflation.) It’s hard to unbuild a house, or rebury gold.
But when people buy up bitcoin (or a stock) they are saying that actual new value is being added. If it’s not, then it’s speculation that someday there will be actual new value. If that speculation comes to be seen as wrong, that seeming extra value in the world can vanish much quicker than you can unbuild houses or rebury gold.
At $3000 bitcoin was valued at around $40 billion. That’s not really enough to make a difference to world economies, if the value suddenly disappears. At $2000 bitcoins, we’ve lost maybe $12 billion in global assets. A drop in the bucket.
But, if bitcoin really had run up to $300k, so that all bitcoins were valued at $4trillion, then it’s closer to the size of the 2007 housing bubble. If that was a bubble that popped, it could move a needle.