The start of the year 2018 has not been very kind to Bitcoin. With prices correcting nearly 70% from the high of $20,000 in December 2017, it has been quite the roller coaster ride. Traders with experience however are not surprised because Bitcoin tends to correct itself very similarly every January & February.
In January 2017 Bitcoin price correct from a peak of $1167.8 to $734.5
In January 2016 Bitcoin price correct from a peak of $475.4 to $352.6
In January 2015 Bitcoin price correct from a peak of $475.2 to $166.3
As you can see this is a trend that has been running for a couple of years and traders with experience trading this market were bracing themselves for another shakeout in 2018 as well.
The question on everyone's mind however is whether we have found a bottom for Bitcoin after this massive retracement.
All good traders know that picking tops and bottoms is a waste of energy. No one clearly know where the market will top or bottom. The market will do whatever the market wants to do and we will have to adjust our plan likewise. As traders the only thing that we can do is to look for clues which help us form our own individual thesis on the state of the market.
Listed below is some evidence we are finding encouraging at the moment. Given the volatility in this asset class you need to enter every trade with a plan. If you do not then you are setting yourself for failure.
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The week of the 5th of February 2018 saw the highest recorded volume over the last 12 months. The $5,800 support level was defended very strongly and we finished the week with a pin bar candle with much higher volume than the one which was created on the 22nd of Jan 2018. This coming week is going to be critical for BItcoin as it needs to finish the week above $9,200 for us to begin exploring any bullish setups. Looking at weekly charts we still do not have enough confirmation that we have broken out of the downtrend that is clearly visible.
Moving down to the 1 day chart we can begin to see more details about how price has been acting over the last couple of weeks. We are still clearly in a downtrend and should not be getting overly excited just yet. What caught our attention was that the downward channel support did not break in last week's violent move down. If it had then we probably wouldn't be writing this post right now. For Bitcoin to show reversal signs we are looking to cross the 61.8 Fibonacci level around $9350. This is going to be a key level to watch.
Regulation and the stance the SEC and CFTC will take on Cryptocurrencies is a large hanging sword over the markets at the moment. Last week they had an important meeting where they discussed policies around the matter and several positive stances were taken.
“Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response. The evolution of these assets, their volatility, and the interest they attract from a rising global millennial population demand serious examination.” Christopher Giancarlo - CFTC Chair
“Said simply, we should embrace the pursuit of technological advancement, as well as new and innovative techniques for capital raising, but not at the expense of the principles undermining our well-founded and proven approach to protecting investors and markets.” Jay Clayton - SEC Chair
One of the things that has the technical community very excited is the growth of the lightning network on Bitcoin. It still has a lot of technological hurdles to get through, however if those problems are solve we will be able to greatly increase the number of transactions per second. On Feb 8th 2018 we had 538 lightning nodes with 1,326 channels running on mainnet. Keeping track of the growth of these nodes and channels is something traders should keep an eye on. If we continue to see exponential growth in this area this year it will help cement the long term viability of this asset, which at the moment is still questionable.
So are we sure whether we have found the bottom in the Bitcoin market? No.
What we do have is some anecdotal evidences that are starting to converge. Perhaps the sellers in the market are exhausted and the buying interest starts to increase. However as traders you need to keep a very close eye on those resistance and support levels highlighted above. Those could be pivot points that could see the market go down even lower or could see us get a bull trend back on track.
This is an important week for Bitcoin and we can't wait to see what it does!
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