Bitcoin Traders Conflicted
After Bitcoin’s “Black Friday” on December 22nd (and not the fun one, but like that of the 1987 Black Monday for stocks), when it lost a third of its value after reaching a record high above $19,800 (in a single day!) traders find themselves torn.
On the one hand, the sell-off cleaned up a long overdue correction, of which we had been warning our readers, even as prices kept soaring, suggesting it’s smooth sailing (or more like another atmosphere-ripping take-off) from here on out.
On the other hand, this may just be the opening shot of a broad sell-off, weighed down by gloom-and-doom forecasts from many big-name critics and a few national governments. They argue that the value is arbitrary, backed up by nothing more than hype, likely leading the virtual gold to crash.
Either way, this virtual asset is not for the weak-hearted. In the last quarter of 2017, the price of Bitcoin has more than tripled. This has led to a sudden surge in the awareness of Bitcoin across the globe, further exacerbating unbridled demand. On Black Friday, the cryptocurrency plunged 44 percent into a black abyss during trading, painting Friday with 50 shades of black. Today, it rose 10 percent to over $15,000 as of 9:20 in London (4:20 EST). Finally, it settled at the $14,770 levels, as of 6:30 EST.
Is Bitcoin's Price Correction Healthy?
According to chief economic adviser at Allianz, Mohammed El-Erian, “The most important question facing it is whether the recent price correction will prove to be what market participants refer to as ‘healthy'.”
Did the Black Friday freefall eliminate all the fat, which bloated the price beyond its fair value? If so, that would attract institutional investors, balancing out an asset that was burdening investors who don’t represent the financial community. If, however, high profile critics would continue to warn against a crash and governments resume to war against its operations in their countries we might expect the virtual coin to be worth virtually nothing, at least relative to its current levels.
On the other hand, in a period when the individual defies the collective (starting with the Arab Spring and resuming with an enduring separatist movement in Europe, not to mention arguably the most anti-establishment US president in history) perhaps this is the “people’s asset” that stands up to “the man.”
Both the MACD and the RSI provided sell signals – before Black Friday. The MACD’s shorter moving average crossed below the longer moving average (showing that more recent prices are weakening relative to prior prices) provided a sell signal on Wednesday, December 20, two days before the selloff. The momentum RSI indicator (premised to lead the price, as (price) movement follows momentum) provided a sell signal a day earlier, on Tuesday, when it provided a negative divergence to the price, registering a lower peak, while the price posted a higher peak.
Both the Friday sell-off and the Sunday low found support on the 50 dma (green), still in bullish formation, plotting above the 100 dma (blue), which in turn plots above the 200 dma (red).
Trading Strategies – Long Position
Conservative traders should not trade Bitcoin, with its unpredictability (relative to other assets) and wild swings. However, conservative traders relative to those who trade this wild asset may come in on a bounce off the 200 dma (green) currently plotting along under the $6,000 level.
Moderate traders may enter a long position on a higher risk trade with a bounce off the 100 dma (blue), “waiting” under $8,500, per current trading.
Aggressive traders may buy the controversial “asset” on a bounce off the 50 dma (green), currently above $11,625. They would place a stop-loss below Friday’s $10,718 low.