Bitcoin Analysis: Week of Dec 21 (Happy Holidays)
Bitcoin Analysis from Tone Vays.
Note from the Author: Please see (@Tone_LLT) for more timely updates throughout next week on price developments and latest charts.
Last Week’s Review
Last Week we concluded with the following:
We are on the very edge of turning fully bearish for the near futures. At the moment the short-term view is set up for a small bounce to the US$365 levels, but after that we will most likely see more downside. The intermediate term view is sitting right on the edge and we would need a break back to US$380 and above next week to change that. US$340 is the critical number to watch.
Two scenarios in order of higher probabilities
Bearish: US$340 is our line in the sand and any breach of this level in the very near future is an indication that we can see US$300 in a hurry. The descending triangle target is still out there at the US$290 level.
Bullish: Unless you see some major problems in the fiat banking system, there is not much to be happy about. The Microsoft news took us off the US$340 bottom and got too as high as US$365, which is now also the level of the 50-Day SMA. Any talk of a rally will start with a break of this price level. Above that we have resistance at US$400 & US$450.
We were looking for a very small bounce before the hammer came down, but even that was a bit too optimistic. Anyone who ignored this US$340 support line was really caught by surprise as price did in fact drop like a stone. The big question to ask now is whether the US$302 was the bottom and Bitcoin will never see a price below that going forward or is our target of US$290 going to get hit before the New Year?
As usual, let’s look at the weekly chart to see how we got to this point.
As you can see from the chart, the downside is getting very limited before we get into major trouble. Last week’s low came close enough to this line to consider the possibility of a reversal to new highs, but calling it is way too premature. The problem with the price rising around this time last year from just over US$100 to over US$1,000 is that there are no true support or resistance points that get created along the way to establish a healthy up trend.
Because we spent the entire year slowly going down, these points are being established now but this not the direction anyone wants other than expert short sellers or economic professors who think the correct value of a bitcoin is US$10. As long as we remain above US$265, the long-term view should be considered slightly bullish and ready to reverse any moment.
Education (Trading Rules Review)
The end of the year is a good time to review your investments. Since the following has not been said here in a while, for those who are trading for fun or even for a living, make sure you are trading with capital you are willing to lose. This point cannot be stressed enough. There is no perfect system and no matter how great a technical plan can look, market forces have a way or making you believe that everyone is plotting against your positions and things can get out of hand in a hurry.
Here is a very short video to remind the readers of that and even though the first instinct might be to laugh, most traders are doing so out of sympathy because it happens to the best of them.
NOTE: Warning, Explicit Language
On a more positive side, trading can be very rewarding when being on the right side of a trade. You just have to be very careful and not consider yourself perfect after several good trades.
Fundamentals & News
Weekly News Roundup by Brave New Coin
After last week’s extra long news overview, this one will be significantly shorter but the big story of the week was of course Charlie Shrem being sentenced to 2 year in prison. Without getting into the details of what happened, this is of course a travesty. The government has convinced people that money or property (as the IRS calls it) is in itself illegal. Unfortunately, we should all be worried because anyone who has even handled a fraction of a bitcoin may one day face the same penalty as Charlie.
But this does not mean that Bitcoin is doomed to fail, as many will have you believe. Charlie was instrumental in helping Bitcoin become what it is today and the ruling in this case clearly shows how those working for the government do not understand this technology and are scared to death of it. Why else would they try and intimidate the community this way? But it will not matter, Blockchain technology will succeed in the end.
Of all the takeaway from this sentencing, perhaps the most important lesson people need to remember is that no one working for the regulators, law enforcement or the (in)justice department are to be trusted. The moment you agree to co-operate or sign on their dotted line agreeing to be their policeman and notify them if you see something, they got you. The following has been said before but definitely should be emphasized again:
“The smartest thing Satoshi ever did is to remain anonymous, and in this day and age, you can imagine how difficult that must have been.”
The developers of many of these Bitcoin 2.0 systems that have launched sales of their products need to be extremely careful and have some good lawyers ready just in case. Once these regulators like the SEC smell blood, they will come for their piece of the pie.
This event does not seem to have much impact on the market, and there is a high chance that other high profile people might get worried and look to take a break from Bitcoin, whether it is by cashing out or just putting them in cold storage. In the long run however, it keeps people talking about it and hopefully it will continue rising in Google’s searches for the immediate future.
Not much other news of note other than another corporation is looking favorably at Bitcoin. The convert this week is Time Inc., but once again the impact is the same as Microsoft, Dell or PayPal. It’s nice that they are providing an additional place to use the bitcoins for those who already have them, but it does not do much to those that don’t. The demand side of this equation remains week and will continue to be that way until more people begin to realize the giant problems in the fiat financial system. Those problems can simply be summed up in one word: Debt!
We now take a look at the full year and see where we stand.
The breakdown of the bullish channel does not only look scary, it actually is. By breaking under the US$340 support, we have established a very tough resistance at those levels and if we do have some more legs left in this rebound, US$340 might put a quick end to that. There really isn’t anything left holding the price up other than US$300 and a lot of interesting things happen once we go below that number.
No one should forget the massive amount of coins that were bought taking down the BearWhale back in early October. So the question is, what will those buyers do at US$290, will they sell everything and get out and break even, or will they double down on their big investments?
The Short-Term zoomed in view is clearly suggesting its direction with the once again down trending 50-day moving average. Last week’s bounce from US$340 never made it high enough to touch the moving average, so this time it’s an even bigger climb.
In a few days this average will be below US$350 and making it more difficult to break above the now established US$340 resistance. Yes, there is a chance we bounce back to those levels here, but this chart still looks very weak. The one bright spot is that we have hit the RSI oversold condition the other day, but as you can see from the chart, Bitcoin has not had a problem spending the majority of its time in that zone recently.
Because just 14 months ago the price of a bitcoin was around US$100, the long term chart is still showing tiny signs that a reversal can come any week so we have to remain slightly bullish on that time frame. On the other hand, there is nothing positive to point to technically or fundamentally on a daily level. Demand from people going out and understanding Bitcoin along with buying a few just to try remains pretty weak.
The daily price chart reflects this. So as much as we want to say that US$300 will hold the price up, the probabilities are saying otherwise. We are expecting for the price to fall back to US$300 and most likely hit our US$290 target before the start of the New Year.
Two scenarios in order of higher probabilities
Bearish: In case the US$290 support breaks, we would be looking for the US$265-275 zone to create a double bottom with the yearly lows and also to match the bubble top of April 2013.
Bullish: There is some room for an immediate bounce right here to take us back to US$340 or even US$355 which is the area of the 50-day moving average. Getting there will most likely present a selling opportunity and only above those levels will we consider looking for additional bullish targets.
Reference Point: Sunday Dec 21 11:45 pm ET, Bitstamp Price US$320
About the author
Tone Vays is a 10 year veteran of Wall Street working for the likes of JP Morgan Chase and Bear Sterns within their Asset Management divisions. Trading experience includes Equities, Options, Futures and more recently Crypto-Currencies. He is a Bitcoin believer who frequently helps run the live exchange (Satoshi Square) at the NYC Bitcoin Center and more recently started speaking at Bitcoin Conferences world wide. He also runs his own personal blog called LibertyLifeTrail.
Disclaimer: Articles regarding the potential movement in crypto-currency prices are not to be treated as trading advice. Neither Cointelegraph nor the Author assumes responsibility for any trade losses as the final decision on trade execution lies with the reader. Always remember that only those in possession of the private keys are in control of the money.