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What About Bitcoin? Is It A Bubble Or Is It About To Blast Off?

I am going to take an agnostic yet analytical perspective on this thing. People who have chatted with me know my very cautious feelings about Bitcoin. What I am going to analyze is not the stock, but the actual pair exchange (BTCUSD) on the Mt.Gox Bitcoin exchange, which seems to have the most complete data I can find. I do believe that crypto-currency or some other morphing surrogate for it will have a place in exchange and commerce in the future. I also believe that because governments want to have the power to inflate their currencies to pay off bad debt at the expense of the wealth of their citizenry and their beleaguered taxpayers, governments will make a pitched battle to control such crypto-currencies by forcing them to be banked and to store a bounded value, thereby giving power to the fiat currencies that they use to maintain their political power and to dispense the entitlements that their citizenry are hopelessly addicted to. If the world would just experience a Jeffersonian revolution of free markets and free exchange, I would be at the front of the line with the many hallowed Bitcoin evangelists out there. Alas, I am a realist though, so I will wait until the liquidity of these things become large enough so that I can freely trade them, assuming our governments will allow such freedom. Haters gonna hate though, so I will just take the rotten tomatoes and keep doing my analysis dispassionately. I can always hose off and start fresh after the shower.  To bolster my point about inflation, take a look at this link, and what the glorious IMF thinks a good solution is. Sadly, many of our criminal paltroons in Washington will buy that argument. If you want a balanced analysis of Bitcoin, read this link. At least you can study before you go hatin’ on me.  Now, lets get back to the chart analysis, and lets see what our high and low targets might be.

Here is a snapshot of the Mt.Gox chart for BTCUSD. It is showing a bear set-up with an AB=CD finish at the end of it. From its high at 1216.80. it corrected to 486.75 which ws just a little south of a perfect 61.8% retracement of a momentum low at 75.70 and the momentum (and all time) high of 1216.80. We rallied today to a high of 1090.92, which is just short of the 88.6% retracement of the rally from the 486.75 low and the all-time high. That would eliminate perfect symmetry of 61.8% retracement required the a perfect Bullish Gartley pattern which might exist after a completed price correction.

Here are the best two scenarios for price targets. I will not do any more of these because I can psychically sense that many of you are closing your eyes, and if you are driving and reading your iPad at the moment, lives may be at risk. The rest of you only risk bumping your foreheads against a desk or something. Get a band-aid or a butterfly bandage. Here we go:

1) Bearish scenario: If BTCUSD does not take out that 1133.58 retracement level ( 88.6% retracement), then a bearish reversal is typically about 75% likely. If that happens ( as shown on this chart),  a target low of 403.53 is likely if price symmetry is maintained. (I do not have enough accurate data to do time symmetry, but suffice it to say, these patterns repeat often enough that any sell off could be extended.

2) Bullish scenario: Because the rally was pretty solid, and rallied to 1090.91 , and got almost the the 88.6% retracement of the previous correction (1133.58), it stands to reason that any surpassing of 1133.58 on volume would lead to at least a double top (at 1216.80) and if there is a solid breakout in volume, the first target of that rally would be the 27.2% extension of the low to high leg (the AB leg) which would be 0.272 * (1216.8 -486.75) +1216.8 = $1415.37.

Because I have no ability to predict the future perfectly, all I can say is that the odds of the price being in that range is probably 95% within the next couple of months (or for continuities sake, 8 to 13 weeks). But instead of being wildly bullish or madly bearish (remember my motto, I am neither bull nor bear, I am a Buffalo), I put a RANGE around my risk. That is, by the way, what successful traders do. I believe that anything is possible, and I have covered my butt in case it do not go my way.

I know many of you out there were buying the last dip. Based on the analysis I gave you just now, which is how I approach charts that show that distinct pattern, I would be taking some money off the table now ( and it appears tonight that many are).  If we do not see a rally above that 88.6% retracement, we will likely see shorts begin to hit BTCUSD and put pressure on the pair. We will have to see what happens as the next few days roll around, but the two break point scenarios are the more likely of the many outcomes that are going to shake out.

I do not like the liquidity of Bitcoin, as I have expressed to many before. I want you to make money, but not because you are lucky or just like to gamble. I want you to use responsible risk. Many of you do know more about Bitcoin than I do, but the real question is. Do you know how to bound your risk? If you don’t, sooner or later you will get hurt, and it might not be with your play money, but it might be with your children’s college money or money you might need to retire with. I have no dog in this fight. If I did, though, I would use this kind of analysis before I took the risk. Risk is risk, losses will happen, and gains will be made. The only thing you need to fully understand are the probabilities that you are going to be correct.

That’s my story and I am sticking to it. I could have written a post about the 20th anniversary of the attack of Nancy Kerrigan’s right knee by a hitman hired by Tanya Harding’s ex-husband, but that doesn’t need chart analysis. That needs psychiatric analysis, and that would REALLY be boring.

This blog is not dead, but until I can find a way to build a large subscription base for it, I will be posting when I can. I am changing up databases at the moment, but I will return soon with targets on the major indices and other analysis of markets.

Now, get off my back about Bitcoin, and thank you for continuing to support this blog!

{ 2 comments… add one }

  • Scott January 6, 2014, 10:37 pm

    Great stuff mate and sure will miss this blog, hopefully one day u can figure out how to do,it on regular basis. Your professionalism is truly appreciated from this old man:). Thanks so much

  • admin February 2, 2014, 7:11 am

    Thanks Scott. Its not totally dead yet. Some friends of mine and I are trying to figure out a way to monetize it so I can justify the time to product it and all the research that accompanied it since it was part of a website in 2004! I really appreciate those comments.

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