Monday, 5 February 2018

Bitcoin: More Critical Levels are Breaking Down

Have been busy with watching my stock portfolio (where i put real money) that i'm not really paying too close attention to the cryptocurrency space. I bought a single Bitcoin when it was a few hundred dollars. So even if Bitcoin go to zero, i'm not gonna losing any sleep.

I've sold all my coins last week to wait until the dust of this crypto crash settles. To survive as traders, you need to learn to sell at a loss.

When my brother who had never talked to me about investing, least of all stock market suddenly asked me if i own any Bitcoin. I laughed, and told him i sold it just previous week. Our conversation took place in early January this year (2018). He asked why i sold it when prices are going up. I told him in a half joking way that because when he talked to me about Bitcoin, it's time to sell. I explained that this is a waiter / cabbie / shoeshine boy moment. When your waiter or barber or taxi driver or shoeshine boy (if they still exist), in other words the general public, gives you tips about the stock market, it's an indication that the top is in. So when my brother whom i consider a financial layman, the general public suddenly talked to me about Bitcoin, it's a signal to sell.

I sold Bitcoin just a couple of weeks before that conversation, but the conversation confirms that my decision was correct.

My friend Darren who had no interest in investing, in fact, his only interest was spending money, so when he told me that he was interested in buying dotcom companies back in 1999, i was rather surprise at the time. It was so uncharacteristic of him. After all, he was a young who liked partying too much.

And when my brother talked to me about Bitcoin, it was the Déjà vu moment, a re-run of my experience of the Tech Bubble of 2000 with my mate Darren . Interesting, isn't ? Nothing has changed. I had to laugh.

Actually, i've told my brother a few years back about Darren and the Tech Bubble of 2000. Evidently, he either doesn't remember it, or doesn't see this as a rerun of Tech Bubble of 2000. I'm sure when the next new thing comes along in the next generation, he'll tell the younger generation the same story, and they will ridicule him, telling him that he should hold onto this new thing because its price will go up to $100 million dollars.

Having said that, the Tech Bubble has burst, but dotcom companies are still around. Bitcoin Bubble is, by definition, bursting. Just like dotcom companies, Bitcoin will still be around. But its prices may take years to recover. Just like the Tech Bubble. Time will tell. (When i say Bitcoin will still here, i mean digital coin in general. The crypto space will have a much higher survival rate than any 1 crypto like Bitcoin).

The price of Intel (the computer chips giant) went as high as $75 during the Tech Bubble. Today, 18 years later, it's still under $50. Investors who bought it near $75 had never been able to see their investment break even. I'm not saying Bitcoin will be exactly like Intel. It could be. Nobody knows. There's a lesson in Intel we can all learn from. At least, Intel is still around after 18 years. Would Bitcoin still be around then? Nobody knows. You should question anyone who tells you that. And question yourself why you want to believe that. Let me repeat, nobody knows. It could go to a million dollars or it could go to zero or somewhere in between.

Anyway, let's look at some technical analysis of the Bitcoin chart.

I bought it back after about 50% correction, thinking its price may recover. Realizing later that this isn't the typical correction in the last 2 years, i liquidated it again.

Bitcoin daily chart showing 3 critical levels
Daily chart showing 3 critical levels

These 3 critical levels are breaking down.

Level 'A' is the same level that i refered to in the previous few of my cryptocurrency posts. I explained before that 'A' is critical because it's where the 3 things intersect: the bottom of the falling downtrend channel (in purple), 100D MA and a 50% Fib retracement. That's why it bounces around that level for awhile until it breaks down to reach 'B'.

Level 'B' is important because it's the intersection of the rising uptrend line and the bottom of the falling channel. You know it's an important level because when price is crossing this level, it accompanies with large drop in price (large candle) as well as volume.

The importance of level 'C' is obvious: it's the 200D MA. But once the price break below level 'B', indeed level 'A', you can see that the price drops steepen. In other words, price decline with higher momentum.

Bitcoin WEEKLY chart showing break down in RSI
Bitcoin WEEKLY chart showing break down in RSI
(Click to enlarge)

Another internal technical indicator that shows why Bitcoin price correction accelerates as prices break down below level 'B'.

The RSI in weekly Bitcoin chart above has been bouncing up and down between 53.6 and 85+ since the start of 2016. But at price level 'B', RSI falls below 53.6 for the 1st time in 2 years. As this is a weekly chart, it foretells a more prolonged or severe correction than your typical correction since 2016.

The following chart showing logical targets. The lowest price range $1100 - $1300 would be the ultimate targets where the price break out of multi-year basing. It's unlikely prices would reach this low. But then who knows?

80+% correction / crash had occurred a few times before. So the 2nd target in the chart ($2900 - $3200) would be a possible candidate.

Bitcoin weekly chart showing price targets

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