Investor’s Interest in the Bitcoin Price over the Last Few Weeks has Been Very Revealing
My last blog post pointed to a couple of interesting things I saw in the price chart of the Euro and Dollar. That post and the email I sent to my subscribers highlighted the fact that the Bitcoin price was being supported at the $6,000 to $6,500 level.
In this post I give three reasons why that level will potentially continue to be supported. In plain English, what I am saying is that so far, there has been clear evidence that significant numbers of investors are buying Bitcoin anywhere between $6,000 to $6,500. Or put another way, Bitcoin investors have been prepared to put their own money on the line to prevent the price going lower.
I wrote in my previous post that the Bitcoin price was being supported by investors while the Euro was weakening. At the moment, the market environment is for investors to show preference for the US Dollar. Investors are displaying similar behavior in other major currencies and commodities such as Oil and Gold.
I should add that when I write ‘strengthening’ or ‘weakening’, I should say relative to what. In the case of the Bitcoin price and the Euro which are both priced in US Dollars, it will be US Dollars they are strengthening against (or weakening).
Investors Continue Show Faith in the Bitcoin Price
Another week has passed and buyers have continued to defend that $6,000 to $6,500 level in Bitcoin. The Bitcoin price chart gives us that evidence. Take a look at the chart below.
The top edge of the red line I’ve added in the Bitcoin price chart above is at the $6,000 mark. We can see that back at the start of the year when all hell was breaking lose and it felt the sky was falling in, price fell as far as the $6,000 level. This was at the peak of the cryptocurrency selling.
Subsequently, the $6,000 mark was tested in June and again in July. During August, the daily price ranges have narrowed as buyer and sellers are caught in a battle. Sellers have been selling Bitcoin since the start of the year. Each bounce up has been met with renewed selling. However, as the price range is become more contained, buyers has drawn a virtual line in the sand. They’ve said they don’t want price to go lower than $6,000.
I think there are three reasons why they will succeed.
Reason #1: Selling in Ethereum Continues
Despite the Bitcoin price providing us evidence that Bitcoin buyers are prepared to put their money on the line anywhere between $6,000 and $6,500, investor interest in Ethereum has not (yet) showed up.
Look at the Ethereum price chart below. Ethereum peaked just after Bitcoin in early January while Bitcoin itself peaked in December. Following that, both market went into free-fall early in the year and since have continued down albeit with less dramatic headlines.
However, here’s where there’s disparity. Bitcoin ‘kissed’ the $6,000 level and bounced back up. Ethereum briefly breached $600 before bouncing back to around $900. Ethereum sellers then returned to push price lower. However, whileBitcoin’s previous low was not breached ($6,000), in Ethereum support at $600 was torn apart.
Price crashed through $600 to just under $400. Buyers showed up and defended the $400 area buying it all the way back to $800. This was just under the area that sellers had previously showed a desire to sell.
That was back in May / June. Since then sellers have had control of the market. The chart directly above demonstrates this. There has been a broad channel down since the start of the year. As evidenced by the Bitcoin price chart, investors are not willing to allow the price to fall further than $6,000. This was tested at the end of June and beginning of July – price couldn’t fall further.
However, we cannot say the same about Ethereum where the corresponding level Ethereum would be around $400. In May / June buyers bought at $400. We can see that although price didn’t rise far, at least it was supported.
Then something changed. Three weeks ago buyers stopped buying at $400 and price has continued down.
Unlike Bitcoin, Ethereum is not at a price point where investors show total conviction to buy for prolonged periods of time.
Sellers are in control and are pushing price towards $200. I think we’ll see some buying activity here, will it hold? Time will tell.
Reason #2: Euro and Gold are Weakening While Bitcoin is Holding
As I highlighted in my previous blog post while Bitcoin has held it’s ground the Euro has weakened. Take a look at the chart below of the Euro. I circled the point at which Euro broke down through a long term area of support.
This was where Euro investors have previously shown intention to support price. That break down occurred a couple of weeks ago. It coincides with the similar time that Ethereum broke down through the $400 support.
We can see the same breakdown in Gold. Weakness in the metal with sellers in control of the direction has actually been in place since the start of the year. Then in late June this weakness became more notable when price broke a long term trend up which has been in place since the start of last year.
Gold’s long term up trend has been marked in the price chart below. You can see it in the diagonal line starting on the left in late December 2016. The top circle demonstrates the break of this trend.
Prices continued down week after week reaching the $1200 – $1210 level 3 or 4 weeks ago. The red horizontal line on the chart shows this. At the time, sellers didn’t have enough momentum to continue pushing down price and buyers, temporarily at least, were able to support price.
Then last week buyer conviction disappeared and the sellers were able to push prices not seen since early 2017. This an almost mirror reflection of what we saw in Euro and Ethereum… But not Bitcoin.
Reason #3: Despite the Bad News, Price Holds
For me, the third reason that the Bitcoin price may not go down further is the most persuasive. The psychology is a little counter intuitive so bear with me.
As soon as new information becomes available, market participants act quickly to adjust their strategy to take into account the new information.
Despite the recent negative Bitcoin news, price is still holding up.
This is true for all markets whether it is Gold, Euro or Bitcoin. When new information surfaces price can show volatility, the more significant the information, the more volatile.
But here’s where it gets interesting. When you notice new information on your Twitter feedback or TV which you might think would be enough to push price up or down and nothing happens, there should be alarm bells ringing.
Why hasn’t price reacted? Is it because the market already suspected the information was going to happen and had already factored it in?
Or is it something else? When negative news surfaces (or positive) and price doesn’t shift or even do the opposite it probably is telling you something important. It is telling you that no matter what the news is, price has detached itself from the news.
For me as a long term investor, this is a tipping point. This is the point that the market has gone beyond its true value.
Back in December when the hype in Bitcoin was at its greatest, all the news was positive. It got to the point where new positive news wasn’t making any difference to price. It didn’t go further.
Following December we’ve had a multi month decline. Are we now at the other end of the scale?
Just recently news has surfaced about multi million US Dollar Bitcoin fraud. What do you think price did?
If you though that price fell, you would be wrong. It did nothing, it remain steady. Another example:
The crisis in Turkey with the currency in free-fall. Investors want safety, they want to put their money into low risk investments – they want protection from the crisis. What has happened to Bitcoin?
You would think it would be sold and exchanged for US Dollars and Japanese Yen when there is uncertainty. However, as above, you would be wrong. Bitcoin has held steady.
Is the $6,000 – $6,500 area the bottom for Bitcoin? It’s too early to make any conclusions however, as I have written above, there are some very positive signs emerging.
Disclose: I don’t own any Bitcoin, Ethereum, Euro or Gold at the time of writing.