Caleb & Brown No Comments

It has been an interesting past month for Bitcoin, although the markets do seem less quiet than the period of rapid decline in February. This is to be expected, as a large portion of investors who unfortunately entered the market at December highs may have panic sold. Our fall from $20,000 (USD) saw a bottom at $6,000 (USD), before a run up/recovery to $11,800 (USD). It is important to acknowledge that as much as a parabolic rise isn’t sustainable, neither is a decline of the same magnitude.

Moving on, let’s focus on what’s going on with Bitcoin right now (14/03/18). From a technical perspective, we completed a double top formation with a peak of $11,700, causing a volatile dip into the low $8,000s (USD):

On a smaller scale, the dip was succeeded by a double bottom at around $8,400 (USD), and currently has recovered to the low end of the $9,000 (USD) range. Although from a technical perspective the rejection from the local top twice as shown above is a textbook bearish indicator, it was by no means a natural rejection.
A double top formation is only validated when the price breaks below the neckline, which is the level of the local bottom in between the two peaks (in this case ~ 9,200 USD). Although we do see a decline from the second peak, the selling pressure really increases on 07/03/18.

What happened on 07/03/18?
A bankruptcy trustee for MtGox, an exchange that was hacked for 750,000 BTC in 2014, released public reports which stated that almost 40,000 BTC were sold in December 2017 and January 2018, and had 166,000 BTC remaining which were awaiting the court decision.

Understandably, the idea of so many Bitcoin being potentially dumped on the market in the future, spread fear among investors and traders, causing them to drive the price down. However, in the short-term, the reaction may be excessive, and here’s why:

  • The selling had ceased as of January, any other selling from this dip was out of fear
  • The next court hearing for this case is in late September, and therefore it is highly unlikely that more of these Bitcoins will be sold until that hearing
  • If the court rules that affected investors are to be reimbursed in Yen, the trustee already has enough funds from selling in Jan/Dec to cover the reimbursements, and therefore no selling
  • If the court rules that affected investors are to be reimbursed in Bitcoin, there will be no selling from the trustee required (however, reimbursed investors could sell if they wanted to)
    Although a recovery of some sorts from here would not be surprising once the market acknowledges that the situation is not as disastrous as thought, it is important to realise that we are still in a downtrend from our peak last year. The key points to look out for to potentially confirm a reversal of this downtrend is $13,000 (USD).

That being said, all technical indicators should be taken with a grain of salt as the release of news can skew these indicators, take MtGox for example.

In the short-term, expectations for a full-blown recovery may be disappointed as public interest continues to decline. However, it is usually times like these where accumulation is the best course of action. If the top Bitcoin addresses in terms of holdings have been accumulating (they are), it just means that there will be less public supply in the future.

Summary
Right now, the market is in a no trade zone, the bears and bulls seem to be at a stalemate which leads to a build up of volatility, and being caught on the opposite side of the result will result in heavy losses. Instead, it is better to wake for the market to make a decision on which direction it will be moving in, and follow that path. A break below $8,800 USD would most likely result in further decline, whereas a break above $9,600 and then $9,800 USD could push us up to test the $11,700 USD range once again.