BTC/USD has been falling for almost 9 months. Recent triangle pattern, which can be seen on log-scaled chart, show price jump to either bottom or up is imminent. I have reason to believe that this breakout is going to be an upside. Even if it breaks downward, it'll be followed by quick rebound. Here is why.
I intentionally show chart from 2015 when then-worst bottom of BTC/USD happened. An uptrend, started around 2015-2016, has been going on strong. Now this super-strong support line indicates about $3500. However the point is that this isn't a horizontal line, it's a line with slope. This level increases as time goes by, and around March of 2019, the current price level will be touching this support line. This is the worst case scenario and the scenario does not look that bad. Covering cost in only six months, and only upwards from then on? A good bet I'd say.
Though it's a good reason to be long in itself, it's not the only reason to be long.
Try to fit straight line on log scaled chart, and you can easily spot fundamental changes. There are two upward revision of slope coefficient during 2015~2017. One is from underground economy, due to Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information, known as CRS MCAA. Another is probably because of Korean crypto craze starting with Upbit.
Similar changes in fundamentals can also be glimpsed during bear market. For example, selling pressure softened around March-April of this year after touching and finding a resistance/support line with sharp rebound on February - probably the average marginal cost of producing a bitcoin. We are approaching that level again but more slowly this time.
What does that mean? Simple supply and demand can tell you the answer. Supply of bitcoin is quite fixed so change in price is mostly from demand shift. Price falls when demand curve shifts downward. The speed of this shift is grinding to an halt. What does that mean? The big demand shift that has been putting downward pressure on price is now going to an end. Econ 101 stuff.
Within a month or so, the downward pressure will go away. Absent any external news, price level will stabilize around the tip of the current triangle. And, within about six months or so, strong price support from long-term fundamentals will propel the price upward. What we should really see here is not a descending triangle but a grand symmetric triangle, continuing from 2015 to this day.
There are some who think the current pattern is descending triangle, a typical bearish pattern. They may be right on the surface (and in the short run) but I doubt their advice will be something that one can act on. How far can you go down? I would say about $4000, if we experience the typical worst. That is about 30% drop, which will take about a month of time. Considering annualized standard deviation of BTC/USD is almost 100%, well, that drop is not worth mongering over.
(Things may be different to you if you are a day trader.)
Also note that the descending triangle is bearish only because it is a pattern that often can be seen when recurring sell orders accumulate to exhaust a large amount of buy order. If that buy order is not exhausted, this pattern is not bearish. I wrote about the change in slope on the above paragraph - which signifies that sellers are not selling as much as before. Can they exhaust bulls? I doubt it, judging by the hash rate and its growth rate (which can be compared to GDP and GDP growth rate.) Bitcoin miners are essentially bitcoin buyers using leverage and as a group they are not being intimidated by bears at all.
Disclaimer: I am long on cryptocurrencies including BTC, ETH, XRP and a few others. This analysis is based on my own research and represents my own opinion. This analysis is not intended to be taken as an investment advise. You, the reader, are solely responsible for your investment decisions.
I intentionally show chart from 2015 when then-worst bottom of BTC/USD happened. An uptrend, started around 2015-2016, has been going on strong. Now this super-strong support line indicates about $3500. However the point is that this isn't a horizontal line, it's a line with slope. This level increases as time goes by, and around March of 2019, the current price level will be touching this support line. This is the worst case scenario and the scenario does not look that bad. Covering cost in only six months, and only upwards from then on? A good bet I'd say.
Though it's a good reason to be long in itself, it's not the only reason to be long.
Try to fit straight line on log scaled chart, and you can easily spot fundamental changes. There are two upward revision of slope coefficient during 2015~2017. One is from underground economy, due to Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information, known as CRS MCAA. Another is probably because of Korean crypto craze starting with Upbit.
Similar changes in fundamentals can also be glimpsed during bear market. For example, selling pressure softened around March-April of this year after touching and finding a resistance/support line with sharp rebound on February - probably the average marginal cost of producing a bitcoin. We are approaching that level again but more slowly this time.
What does that mean? Simple supply and demand can tell you the answer. Supply of bitcoin is quite fixed so change in price is mostly from demand shift. Price falls when demand curve shifts downward. The speed of this shift is grinding to an halt. What does that mean? The big demand shift that has been putting downward pressure on price is now going to an end. Econ 101 stuff.
Within a month or so, the downward pressure will go away. Absent any external news, price level will stabilize around the tip of the current triangle. And, within about six months or so, strong price support from long-term fundamentals will propel the price upward. What we should really see here is not a descending triangle but a grand symmetric triangle, continuing from 2015 to this day.
There are some who think the current pattern is descending triangle, a typical bearish pattern. They may be right on the surface (and in the short run) but I doubt their advice will be something that one can act on. How far can you go down? I would say about $4000, if we experience the typical worst. That is about 30% drop, which will take about a month of time. Considering annualized standard deviation of BTC/USD is almost 100%, well, that drop is not worth mongering over.
(Things may be different to you if you are a day trader.)
Also note that the descending triangle is bearish only because it is a pattern that often can be seen when recurring sell orders accumulate to exhaust a large amount of buy order. If that buy order is not exhausted, this pattern is not bearish. I wrote about the change in slope on the above paragraph - which signifies that sellers are not selling as much as before. Can they exhaust bulls? I doubt it, judging by the hash rate and its growth rate (which can be compared to GDP and GDP growth rate.) Bitcoin miners are essentially bitcoin buyers using leverage and as a group they are not being intimidated by bears at all.
Disclaimer: I am long on cryptocurrencies including BTC, ETH, XRP and a few others. This analysis is based on my own research and represents my own opinion. This analysis is not intended to be taken as an investment advise. You, the reader, are solely responsible for your investment decisions.