bitcoin on rollercoaster

Buy the dip opportunity

Bitcoin dumped 20% in a few hours yesterday and this is normal and has happened many times before. From late 2018 we have seen Bitcoin rising more than 300%. In the bull market of 2017 we regularly saw these big dumps on the way up. In March 2017 we dropped 38% from $1350 back under $1000 in one week. In June and July we dropped 30% but still closed July on an all time high. Early November we reached $7,500 for the first time and subsequently dropped 25% or almost $2000 in one week. And even this did not stop Bitcoin going to new all time highs pretty soon after. It is shocking to see for people who are not used to this volatility, but a clear buying opportunity for cryptocurrency investors. The trading volume has more than doubled in the last two days. Is it that time to buy already? Or can we expect even lower prices this week?

Technical analysis

For most cryptocurrency projects it is very hard to assess their true value. Markets do a better job than individual experts in assessing the best price. The bigger the market the better this price discovery works and the Bitcoin market is the biggest of all cryptocurrencies.
Market behaviour in the past can be analyzed and repeatedly follows certain patterns which leads to a pseudo science called technical analysis. This is not meant as a derogatory description and simply means technical analysis is based on probabilities and is therefore not an exact science. The pattern we were following for the last 100 days was a descending triangle and statistically gives you a 70% chance of a breakout below and a 30% chance of going up. Breakouts tend to be bigger in the less likely direction because more traders will need to change their positions, especially if they are leveraged. Unfortunately we went down and the Bitcoin price appears to be holding around $ 8.300. Nobody knows for certain where the Bitcoin price will be in a couple of weeks. We do know the current price is significantly lower and there have been numerous reports of high profile cryptocurrency investors that have increased their Bitcoin positions on this level and expect the price to return to $10k and higher.

CME futures gap

Believe it or not but this drop to $8,500 was anticipated by looking at the CME futures. Because the price of Bitcoin moves 24 hours a day and CME futures only trade during office hours there is often a difference between the opening price and the closing price of the previous day. This is called a gap and until now all gaps were closed by the price eventually returning to the levels it had skipped during the night. All gaps except one…at $8,500 on June 16, 2019. And since that date some speculators have been predicting a return to this level. Were they right or is this just a coincidence?

Fake out or a repeat of 2018

In conclusion, a range of 100 days just broke to the downside. If we misread the signals and this is not a break out we will know once BTC reclaims $10k. If this is a repeat of 2018 we can expect more downside. As we stated before, this is a different market than November 2018 with much more participants making it very unlikely the price of Bitcoin will again fall almost 50%. The 200 day moving average around $8,300 provides support until now, so it could also be neither of these scenarios. Slow recovery or slow decline is more likely than all shocking prospects now suddenly appearing in the media. In the end, Bitcoin behaves much like the weather. It can change rapidly but tomorrow is more likely to be the same as today.