Disclaimer: The information in this blog represents the opinions of its author and is for educational purposes only. It is not intended as investment advice. Cryptocurrency markets are extremely risky so you should only invest money you are willing to lose.
"The Big One"
It seems like every bitcoin crisis is an existential crisis. As Fred Sanford on the TV show "Sanford & Son" used to always say - "This is the big one".
But the "big one" just never seems to faze the bitcoin market, which shows an astonishing level of confidence and resilience in the face of adversity.
Euphoria and Panic
OK, to be fair, perhaps there was a dose of both euphoria and panic after the recent kerfuffle over the implementation of the block-doubling phase of SegWit.
When the plan was 86'd on Nov. 8th, euphoria over the fact that a chain split would be avoided sent the market rocketing up to a new high of $7898.
The Big Picture
The subsequent selloff over the next 3 days sent the price plummeting all the way down to $5511, which, by the way, is the 50% retracement of the explosive uptrend that began on Sept 15th at $2975.
It's impossible to overstate the psychological effect of such wild price swings on investors. People panic. The most difficult component of successfully trading any volatile market and the crazy cryptocurrency markets in particular is having the discipline to keep calm and trust the math even in the face of sheer panic.
In this case that psychological fortitude would have paid off handsomely as you can see from the chart below. Looking at the entire long-term uptrend which began on Sept. 15th at $2975, you can see that the post-SegWit sell-off was a precise 50% retracement (pink line) level which, once confirmed, provided a ridiculously profitable entry point.
A 30% Move In 3 Days
After confirming the uptrend with a series of higher lows followed by higher highs and using momentum or money flow indicators for secondary confirmation, it would have been relatively easy to initiate a position below $6000 with a safe stop-loss zone. The market continued its uptrend and just 3 days after the low of $5511 bitcoin is trading in the $7200 range - that's a 30% move in 3 days!
Looking For Altcoins
After the big post-SegWit sell-off, Smart traders and big-block believers began to migrate to altcoins that already had bigger block plans in place. The beneficiaries of this move were bitcoin's own 8Mb-block progeny, bitcoin cash, which literally quadrupled in value overnight, then retraced to a 2x value. Dash, which is implementing a 2Mb block on its chain, also spiked to double its value.
That Which Does Not Kill Bitcoin...
True to form, that which does not kill bitcoin - seems to make it stronger. In fact, a careful reading of the popular press revealed that, for the first time I can remember, instead of publishing another bitcoin obituary the press was actually touting bitcoin's demonstrated ability to bounce back in the face of adversity.
A CNBC analysis revealed that bitcoin price has risen an average of 61.5% over the 4 weeks following each sell-off of 20% or more. So instead of pronouncing the death of bitcoin's uptrend, the mainstream financial network was touting its resilience and even (OMG!) projecting its future price! This shift in press coverage is a sea change and can be seen in other mainstream media and financial publications who have started transforming their rhetoric from words like "fraud", "bubble", and "the dark web" to "a revolutionary new asset class".
$10K-Bound By 2018?
And bounce it did, in typical dramatic fashion. Bitcoin's price rose from $5511 on Nov. 12th to $7200 today (Nov. 15th). This is nearly a 30% increase and is consistent with the data published by CNBC seen in the chart below. If the numbers stay consistent, bitcoin has at least another 30% to go over the next 3 weeks, giving it a short-term price target around $9000.
Our short term Fibonacci targets, $8547 & $9373, coincide with CNBC's analysis, and we see bitcoin heading toward $10,000 by New Year's Day.
Uncannily Accurate Waves
The 61.5% average discovered in the CNBC data is no coincidence. In addition to the remarkable resilience of bitcoin's bull run, the market has demonstrated an almost uncanny tendency to conform to wave patterns that are predictable using Fibonacci math. Analysis of the data from the last 5 bitcoin sell-offs averages out to be almost identical to our key Fibonacci target of 61.8%.
Close observation of this curious characteristic of the market gives the diligent investor an opportunity to enter higher-probability, lower-risk trades by relying not only on mathematical formulas but also on specific wave patterns previously demonstrated by this particular market.