Bitcoin Analysis: Week of Oct 12 (Don’t Blame the Bearwhale)

The week of October 12th Bitcoin Analysis by Tone Vays.

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Bitcoin Analysis: Week of Oct 12 (Don’t Blame the Bearwhale)

Note From the Author: This will also be a slightly different than usual report due to finally being able to catch up after speaking at Inside Bitcoins Vegas Conference Oct 5-7 and also the CoinAgenda/BitAngels event Oct 8-9. This was one of them most exciting weeks in bitcoins volatility so to all the readers that are now consistently following this series, you are encouraged to follow me on Twitter (@Tone_LLT) where I would attempt to put up a chart and some thoughts every few days.

Last Week’s Review

In last week’s post we concluded with the following statement:

Our overall stance remains Long-Term Bearish (with still limited downside), Intermediate-Term Bearish, but for the 3rd week in a row we are flipping Short-Term to now be Bullish. The previous 2 weeks worked out as planned so let’s see if this week is kind to the arrows on the charts. The overall picture still remains very weak for any meaningful reversal at this time. The highest probability move right now is a rebound back to the US$400 area. Even if the price breaks down this weekend into the US$340-350 zone, the fact that it’s oversold still allows for a move from US$340 back to US$400.

We will also remain diligent of the following situations listed in order of importance.

Bearish: In case prices break down bellow the US$340-350 zone, it would most likely go down to the US$260 area with the round number of US$300 perhaps slowing down the slide a bit.

That was written around 4 AM ET Saturday before getting on the plane from NYC to the conferences in Las Vegas a few hours later. One of the disadvantages of analyzing this very volatile market is that it is also 24 hr so no matter when you plan your flights, there is a chance of missing one of biggest moves of the year. So let's go over what happened.

The big news of course was the BearWhale after an initial fall a day or so earlier. The massive sell wall created at US$300 eventually chipped away and there was a great rebound all the way back to just under US$400. For those who were expecting a move from US$350 to US$400 did eventually see their target hit in less than a week but it came at a massive price of watching a crash down to US$275. The price reversed from just above the bearish target implied in our ‘Bearish’ scenario so the big question is – have we finally bottomed for the year?

Also for the regular readers of this series, it is encouraged to follow the twitter feed and even though such a sudden fall came as a surprise to everyone, those that invest wisely and were not in danger of Margin Calls could have stayed calm. Here are the tweets from Vegas about possible expectations.

#bitcoin took an unexpected hit, still expect the $380-400 rebound mentioned last week $BTCUSD watch RSI & $305 low 

— Tone (@Tone_LLT) October 8, 2014

#bitcoin has reached lowest target at $380 but now RSI overbought, a little break would be nice $BTC $BTCUSD: Bullish 

— Tone (@Tone_LLT) October 9, 2014

#bitcoin is hitting resistance at $400, it can break out but a healthy uptrend would fall to $340 or so first $USDBTC 

— Tone (@Tone_LLT) October 9, 2014

#bitcoin showing first signs of reversal, the RSI is back calling turns along with horizontal sup/res $BTC $BTCUSD 

— Tone (@Tone_LLT) October 10, 2014

Please keep in mind that this series is not meant to create a following of traders looking to do exactly what is suggested. Following someone you do not know is a recipe for disaster. It only works in situations where you have a direct line of communication and are not glued to a computer screen waiting for an update. It is intended for those who are interested in learning how some traders do it and most importantly to manage expectations so that when prices suddenly drop to a very realistic value of US$275, a person holding bitcoins is not in a panic. In fact, the readers of this series might actually consider the drop not as bad as expected since it stayed about US$10 higher than the April 2013 bubble top, which was the target upon the break down of US$340 support being lost as mentioned on several occasions.

As a note, you might see a slightly different chart time frame in the Tweets.  The charts with the indicators at the bottom use 2-hr candles and those indicators will be covered in the Education sections sometime in the near future.

So after all that, lets get back to where we are today.  Here is the Long Term Chart.

Bitstamp Weekly October 12 Chart

For the first time in a while the Long-Term view is showing signs of a possible reversal. At this time we are completely Neutral and there one thing missing from turning Bullish (a higher high) and we have also now established a low, which needs to be taken out to the downside in order to once again lean Bearish. At this stage there are no expectations from the weekly chart perspective but points of interest are the high reached on the PayPal news around US$450 and last weeks lows at US$300 (rounding is fine looking at the big picture).

Education (Try Not to Trade or Analyze at 3AM)

No time for an in depth education section today so let’s just talk about trading mistakes, which everyone makes so this is a good opportunity to admit mine. As a disclaimer, I do not make my living trading bitcoins at this time, and even though I do make trades based on the analysis I write, it is always with amounts I’m willing to lose and ‘almost always’ in situations where I know I will be around a computer to change or exit when necessary. I would be more likely to make a spur of the moment trade in the regular financial future’s markets because they provide a lot more tools and options on their exchanges than whet we currently have in Bitcoin.

So here is something a trader should not do:

  1. Trade and Analyze in the middle of the night unless that is his standard consistent practice;
  2. Make a trade knowing full well that you will not be near Internet for about a day and really busy several days after that;
  3. Say that you are now a long-term holder instead of a short-term trader when the position goes against you and there was no exit.

The Bitcoin world is very volatile so something like the second point should be obvious. This volatility is also the reason why the third point was not as bad in this case since the target achieved 5 days later as the price hit US400 though after a big crash. If you ever feel you just turned yourself into a long-term investor on what was intended to be a short-term trade, there is a big problem.

That slight blunder was actually mentioned in the Wall Street Journal Blog in the article titled BitBeat: Bitcoin Finds Willing Buyers, Even With Prices Plunging. Would like to thank Bitcoin Watcher for pointing it out:

@paulvigna Awesome that @Tone_LLT was mentioned in the WSJ blog post. I'm watching like 30 Bitcioin chart analysts and he is in my top 5.

— Bitcoin Watcher (@Bitcoin_Watcher) October 6, 2014

Fundamentals & News

This was a very busy week and due to conferences the weekly roundups very useful.  Here are just 3 of the many that are out there:

So as everyone knows by now the big news was of course the price drop and then the major sell wall attributed to the a big seller nicknamed BearWhale. The market chipped away at this wall and after about half a day or so it was all over and if this big player had intentions to crash the market further and buy back the bitcoins cheap, since he probably missed the fall one day earlier, it can be considered an “Epic Fail." This of course will start another debate over manipulation and regulation, which should really not be the case in a free market. Bitcoin is starting to lose this status so we all should just enjoy it for the time being. Here is something said at the conference that is worth repeating here and will be used as the last Twitter plug for the day.

Live from #insidebitcoin Vegas: @Tone_LLT :"If u aren't going to yell for regulation on the way up then don't yell for it on the way down"

— @BitCoinSusan (@BitCoinSusan) October 5, 2014

In other news, Patrick Byrne has announced that Overstock plans to work with Counterparty in an attempt to put all of Wall Street on the Blockchain. This is a very interesting development to be watched over the next few years, though at the moment should not have much of an influence on the prices.

One other piece of news to report is the turnout in Vegas for the Bitcoin events. The issues mentioned over the last few months about prices dropping due to the lack of new users were visible since there were very few looking to learn what Bitcoin is.  However, the enthusiasm and the turn out from start-ups and investors looking for the next Netflix or eBbay was also noticed and this is the optimism behind the future of Bitcoin. Adoption and utility will drive the price and from the feel at the events we are just a few short years away.

Daily Overview

Here is our 1-year Daily chart still referencing Fibonacci Retracements and a few Trend Lines broken back in July

Bitstamp Daily October 12 Chart

This ‘intermediate’ term time frame is still slightly bearish, but their are plenty of positive signs. It was great to see volume finally pick up as the price rose from last week’s lows. You will also see a nice long tailed Doji Candle just like the ones in the first quarter of the year, which led to some nice rallies even though in those cases prices still made new lows eventually. What we need to consider this time frame bullish is to establish a higher low or a break out to the US$450 zone.  Ideally this low would be around US$340 but since prices did already retrace from US$400 to US$350, it is very possible that this retracement has already been established.

Bitstamp Daily Short October 12 Chart

At this time last week, we were calling the short-term view a bit oversold and expected a rebound from US$350 to US$400. Now we are pretty bullish short term and even though a pull back to US$340 is definitely possible and, in fact, preferred, there is a high probability that we have seen the lows for the year. The only thing that is still missing before making that call is an established higher low and a higher high. The higher high will be achieved with the break over US$400.


Our overall stance is now Long-Term Neutral (still have the issue of not enough new users), Intermediate-Term very slightly Bearish with lots of good signs, and Short-Term Bullish. The ideal situation is for a short decline over the next few days to establish a higher low at US$340 support and then a rebound to test recent highs at US$400. Breaking those highs and establishing a new one would be the perfect scenario for a technical reversal. 

Of course, nothing is ever perfect so here are additional two cases to keep a close eye on listed in order of importance. Regular readers will notice that the Bullish case is not above the Bearish.

Bullish: We can now start talking about the possibility of a reversal in trend. If all that positive volume that took down the BearWhale is indicative of future bitcoin demand then those looking for the pullback to US$340 might be doing so for a long time. We can certainly see prices continue to rise and start to chip away at overhead resistance starting with US$400 then US$450 and then US$500.

Bearish: Since our previous worst case scenario bearish case has played out almost as expected, we will only consider possibilities of new lows if US$340 is not able to hold the price up, and at the moment that is the expectation.

Reference Point:  Sunday 5:30 pm ET, Bitstamp Price US$370

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.


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