Tom has over 30 years of experience in the payments industry, including serving as CFO for various Visa International entities from 1980 until 1999, retiring with the title of Group EVP and Treasurer.
This week is drawing to a close, and believe it or not, Bitcoin is right where it started, hovering a bit over $10,000, a watermark that has been a nice respite, while bulls and bears try to make up their minds about next steps. The world’s favorite digital asset did bounce a bit, when news of the Bakkt exchange launch date was announced, and again when the court ruled against Bitfinex and its attempt to gloss over its improper use of Tether fund reserves. For now, however, BTC enthusiasts appear to be gearing up for a possible wild ride over the weekend, but no one ever knows for sure in CryptoLand.
The optimistic types that are hankering for another sudden rush past $12,000 are deriving their confidence from this simple line chart, a daily Bitcoin version provided courtesy of the folks over at Coindesk. The annotations speak to an inverted “potential” double bottom formation. Shorter timeframes connote a reversal in progress that could ostensibly produce the upward slanted dashed “blue” line. The chartist even went so far as to draw the “potential” neckline, as well.
From that point, you might want to run to your Technical Analysis (TA) textbook to find out what happens next, or I should say what the overwhelming odds in similar situations in the past would suggest. To save you time, the answer is that the odds favor a break out that would traverse the same space as the difference between the bottom and the neck. If you do the math, then the expectation would be that BTC could run past the “neck” and rise another $900, to roughly $11,800. If there were enough forward momentum, you might also expect Bitcoin to blast through $12,000, as well.
Is this some far out theory or a reasonably logical one, based on the facts at hand? Yes, it could happen, as planned, but two things come to mind. Bitcoin is relatively young, as is its database of historical prices. The “odds” come from historical studies of other financial databases. There is a major assumption that “herd mentality” within the crypto space and within its diverse set of current investors would behave in a similar manner, as in other investment mediums. That assumption is a bit of a stretch.
Secondly, Bitcoin has a reputation for ignoring any attempt to accurately forecast its future movements. That fact does not deter analysts from trying to predict logical outcomes, and some of them are on the mark at times, just we know that a broken clock is correct two times a day. Eventually, when the historical database is deeper and more robust, the probabilities favoring TA modalities in the crypto world may align with other more traditional markets. For now, we do need to accept that Bitcoin likes to beat to its own drummer, regardless of what symmetry or beautiful theory says otherwise.
Having said this, Bitcoin has developed a habit over the past few months of making its largest positive and negative surges over weekends. There have been various attempts to explain why, related to low volumes and a lack of liquidity, which when combined can drive volatility through the roof and produce what appear to be rallies, whether up or down. If a “whale” suddenly dumps a heap of coins on the open market, then watch out.
For those traders that do want the comfort of an analyst’s covering your backside, Omkar Godbole at Coindesk put these lines in the sand: “If prices close above $10,000 today and end up rising above $10,927 (Aug. 16 close) in the next day or two, then a double-bottom bullish breakout would be confirmed. That would open the doors to $11,850. BTC has failed at least four times in the last eight weeks to close (Sunday, UTC) above $12,000. So, a weekly close above that level is needed to confirm a complete bullish revival.”
As you can tell, Mr. Godbole is a bit guarded, but hopeful, in his outlook. He is fully aware that the “Fear and Greed Indicator” this week hit its lowest value since last December, a figure of “11” on a “100” scale, signifying that fear is running rampant in the ranks of crypto investor sentiment. As always, Bitcoin will pick its own direction. Wait for the trend to reveal itself, then ride it for all that it is worth. Happy weekend trading!