Bitcoin — Positioned to Break $1300?

Bitcoin made some up moves in the last few days.

Since washing all the way down to about $900 from the $1300 high in the aftermath of SEC turning down Winkelvoss ETF proposal, the price made some headway in the recent few days, coinciding with reports of the Japanese government apparently making Bitcoin “legal”. Despite the wash down to $900, on a 10 month basis, overall the prices seem still to be holding in line with the uptrend that has been in effect since the low last August at around $460. Until that line breaks, it might be reasonable to think that the long-term positioning into bitcoin by those not currently participating in the Bitcoin market is still playing out, although it has been long outpacing the original uptrend coinciding with introduction of thesis about China’s capital flight around winter 2015.

Uptrend line from the bottom in last August at $460
Uptrend line from late 2016, when CNY/USD began its ascent & bull thesis based on China capital flight came forth

However, the pattern in the recent Winkelvoss rout seemed different than the ones seen recently

Routs before the Winkelvoss one often involved some price upmove (often based on CNY moves) attracting a parabolic upmove, followed by a sharp downward move in two units leading to about 50–70% correction.

Aug. ‘16’$450(trough from last rout) — Jan ‘17’$1150 (peak) — Jan ’17 $750 (next trough)
Jan. ’16 $360 (trough from last rout) — Jun. ’16 $754 (peak) — Aug. ’16 $450 (next trough)
Nov. ‘15 $500 (peak) — Nov. ’15 $300 (trough)

However, this rout seems to (1) lack a clear parabolic up, (2) not have the same two-step correction as prior routs, and (3) lacks the consolidation price between the two corrections. Instead, the price moves up and down with uncertainty, until in the recent few days some upswing coincided with the news about Japan’s “legalization” of Bitcoin.

Huge intraday move on March 9th SEC announcement

In fact, the pattern resembles the patterns seen in the earlier Bitcoin moves involving thesis about Bitcoin as some “brave new world” novelty item without a clear thesis link to another asset classes

Nov. ’13 big crash after run-up to $1100 — then gradual wash-down as the “brave new world” hopefuls became discouraged
Jan. ’14 run-up, then gradual wash-down

$1300 is a possibility, but unless it comes from further CNY depreciation, it is probably more likely to be an unsustained upward move in the 6 month term

Without the clear lead from the China thesis-associated trading (given the recent CNY/USD sideways), Bitcoin market seems to be going back to the earlier trading style based on the “brave new world” style thesis about hoped-for but uncertain theories about adoptions and uses, with hopes easily dashed or boosted by random shocks from government decisions / exchange or wallet security issues / scares about fiat currencies. Certainly, with those shocks, breaking through $1300 is possible. However, such moves are also more prone to other random scares, and would be less likely to be a base for a prolonged up move.

Certainly, Bitcoin is a “brave new world” novelty item — cryptocurrency in general is a unique asset class, in that it is a non-physical asset whose transfer need not necessarily involve a very government-driven entity. As the need for such an asset class increases for one reason or another, there would be a rotation into cryptocurrencies in general (not just / not necessarily Bitcoin). That thesis however does not seem to have been fully developed (or broadly adopted), and until it does, the more prudent path seems to be to observe closely the two thesis that seem currently to be in play (the China capital flight thesis and the “brave new world” thesis).

Thanks for reading,


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