Everyone is talking about the surge of Bitcoin since it’s now valued more than $400. Yet, only a few discuss of the next price mark that Bitcoin value increase might meet resistance at.
So, here I am, giving a few reasons why I expect Bitcoin to finally print a red candlestick at the $500 area.
And no, I won’t be talking about fundamental analysis here. Besides, I didn’t really care why Bitcoin skyrocketed in the first place (China and BIDU are responsible according to CNN). So, why should I predict what the future comes that may push Bitcoin’s price down?
It all comes down to technical analysis. And at this point I’m not looking to pick the top of Bitcoin’s uptrend. I’m much more inclined to wait for the pullback and trade long.
How the Bitcoin value increase is seen at the weekly chart
Let’s just lean back at our seat and take a look far away from our monitor. Do you honestly expect this kind of uptrend to go on forever? Without a pullback? Yes, I don’t either. What goes up, goes down.
Bitcoin reached $260 during the Cyprus crisis. When that was resolved, Bitcoin collapsed down to $50. But before it did, it had managed to gain $250, ascending from $10, where it had been consolidating for 4 months during 2012.
What if a similar movement completed nowadays?
Well, we are past the $300 mark. That could have been a likely resistance level, assuming Bitcoin gained $250 again since the recent retracement ($50). Yet, Bitcoin actually found support there, as we’ll see in the hourly chart further below.
We are also past the 161.8% Fibonacci extension ($415 area) as noted in the chart above.
How about a 100% extension since the recent high ($260)? That would mean that Bitcoin is expected to slow down its climbing at $510.
And here is another thought: Back in 2011, Bitcoin surged from almost zero to 30 dollars. Then it surged from $10 to almost $300. Do you see a pattern there? If you do, you wouldn’t be surprised if Bitcoin reached $1,500 in a few weeks (x30 the recent low – $50). That would be a crazy price, wouldn’t it?
$500 is a round number
No kidding! So?
So, round numbers make excellent support or resistance levels in charts. Sure price may fluctuate a bit around that round number. But at least we are prepared ourselves for a likely resistance at round numbers.
Why a pullback is unavoidable for Bitcoin?
Say Bitcoin’s uptrend ends at $500. Because after all, slowing down at %500 is just a prediction. Bitcoin may well climb to $750 or $1,000 in one move (see another pattern there?), before it finally retraces.
Eventually though, it will pull back. Why?
The simplest reason is overreaction of Bitcoin traders. Of Bitcoin buyers to be precise.
Let’s assume that $450 is a fair value for Bitcoin at this point. Enthusiastic traders have already been buying one Bitcoin for much more dollars than that. Thus, when buyers run out of enthusiasm (or money), sellers will take control of the market.
Even those same buyers might want to close their positions, adding to the selling power themselves!
Either way, Bitcoin will retrace and find its balance close to its fair value. Until a new influx of interest pushes its price again – upwards or downwards!
Don’t take my word for it! Watch the price action in early 2013.
Overwhelmed traders pushed Bitcoin value to $260. Was that a fair value for the digital currency? Obviously, no. It was closer to $100, given Bitcoin traded around that level for months. Yet, buyers were too thrilled to be part of that bubble.
Bubble you say? How come it was a bubble, since it now trades much higher that previous high?
Why Bitcoin looks like a bubble
When Bitcoin gained so much in so little time in early 2013, everyone was talking about a bubble. Additionally, when it lost 75% of its value in the aftermath of the Cyprus crisis, non-believers were talking about the Bitcoin bubble. And now they had more evidence to back it up with.
Today, they are just waiting around the corner, ready to talk about the bubble of Bitcoin as soon as it suddenly pulls back once again. I myself have talked about Bitcoin bubble in the past. I even discussed at one point why I would sell Bitcoins at $130!
Yet, I’m still considering it a bubble.
But I do so due to the uptrend’s behavior. Due to the speed of the climb. Not because of how much a Bitcoin is worth nowadays, rather than how quickly it soars (and it falls).
But will Bitcoin crash?
It depends on what we consider a crash. Is it falling down to the previous support ($300) a crash? Can dropping down to recent resistance ($260) be regarded as a crash?
Yet, what about falling to $10 or lower? Well, that would certainly be a crash. Even a pullback at $50 momentarily won’t be considered a crash for me. Yes, Bitcoin may lose 90% of its value over a week’s time, but it will climb back up a bit and find its balance at its fair price.
Question is, what’s a fair value for Bitcoin in today’s situation? Let us know in the comments below.
Photo credit: btckeychain