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Author Topic: BTC/USD: Ready for "The Running of the Bears"?  (Read 19448 times)
ATC777
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March 25, 2013, 02:14:21 AM
 #1

Hey guys,

As I promised some time ago I am back to do more in-depth technical analysis of the BTC/USD rate. I'd hoped to do this again much sooner, but unforeseen circumstances (e.g., nasty car accident, numerous doctors appointments) forced me to put it on hold. But it's time for my next analysis, which probably couldn't come at a more interesting time!  Cheesy

To begin, I'd let's go over a few things before we dig into the charts. Many of remember that not so long ago you could buy a bitcoin for $12 and some change. And how about today (3/24/13)? Try a whopping $71.50! ... say what?! Shocked

As with all things, we have to ask ourselves what fundamental changes have occurred in the market to drive prices to these unparalleled all-time highs. This "super-rally" took place in two distinct legs. The first leg-up of this massive super-rally took us from the $10-$12 level to the high 40s and low 50s. As I was at the time, I'm still skeptical that there was any strong fundamental factors behind that massive climb. What changed? Did we gain some new users? Yes, we did. But we did not quadruple (or even double) our user-base, so it cannot be explained by an influx of new users. So what was it? Dominos pizza? Several people told me that... but Dominos did NOT start accepting bitcoin (it's merely a third party service that orders a pizza for you if you pay them BTC). While that's definitely cool, and a small victory for Bitcoin, it's not the fundamental factor we're looking for. The most plausible explanation is that European financial woes and fear about the integrity of the banking system caused a lot more interest in bitcoin (which is true). However, it certainly wasn't enough to support a $50+ rate for our budding crypto-currency. The "math" simply doesn't work out... So it leaves us with one thing: speculation.

It seems that excitement and the general happy-go-lucky attitude of the bitcoin community is the missing "fundamental" factor we're looking for, and our big swing in price is the result of a massive influx of speculative money. These things are self-feeding... the price moves up a nice bit, you hear some good stuff in the news, you might even have gotten one of those Dominos pizzas (lol), and then you and your buddies putting your whole $350 in savings into bitcoin to join the speculative wave. That moves the price up a bit more, and people chase it -- adding more and more money into it. To an experienced day trader or a Wall Street shark, the average Bitcoin user is what we call "financially unsophisticated"... most of the market is made up of Silk Road-using teenagers, amateur speculators and amateur traders, computer geek college students and the likes... people who've never traded a share of stock, don't know what a "calender spread" or an "Iron Condor" is and have no clue how the futures market works (or in most cases what it even is). When such people see the price of something going up, they leap to the assumption that it will keep going up... perhaps forever? That's what happened in the DotCom bubble, as amateur day traders and novice speculators poured tons of money into budding tech stocks (only to be utterly destroyed). About a week ago, I asked a bitcoin trader what fundamental factors he thought was driving the market higher. His response: "Well... Bitcoin has been mentioned in the news a whole bunch lately!" And it seems he's not alone in his failure to distinguish a news headline from fundamentals...  Undecided

We have seen patterns such as this before... we saw it in the aforementioned "DotBomb"... we saw it before the real estate / MBS meltdown of 2008... and of course, we cannot forget the tulip mania of 17th century Holland. Anyone even moderately experienced with financial markets understands the concept of bubbles. And when I look at this I cannot help but notice the striking similarities between past bubbles and the precariously high price of Bitcoin. But it did not stop at $50. The crisis in Cyprus, news headlines and a myriad of rather trivial factors triggered yet another influx of speculative money driving the price yet another 50% higher. Not even the recent fork in the blockchain (which highlighted how delicate this thing can be) was enough to dissuade the crowd from dumping their savings into the mix. And when the pigs beg to be slaughtered, savvy traders are smart enough to capitalize upon the ignorance of the masses -- thus their money is added to the equation and drive prices even higher... Bubbles operate largely upon the "snowball effect" as greed rolls it up the hillside. In my last analysis I was hoping for a correction that would settle things down and give us time to catch our breath. But I still felt uncertain. I left myself room for the market blasting off like a rocket, and I'm glad I did. But this time I'm thrice as skeptical and have officially begun preparing for a big move to the downside. So let's have a look at those charts...



I've numbered my scribblings on the chart to provide some commentary...

1) Double-top Pattern (drawn in blue)

These things are always scary... Sometimes they fake us out, but a double-top is generally a very strong bearish indicator. A double-top tends to occur at the end of a large rally. The market becomes over-bought, and finally tips over as people begin selling. But just as the selling gets heated people decide to jump back in, hoping that the rally will continue. When it doesn't, and fails to break through the former resistance level, everyone begins jumping ship and it plummets. In my day trading experience I've found these things to be good indicators. The double-top pattern was what gave me the signal to sell all my gold and silver futures, mining stocks and physical bullion just under $50/oz for silver. And it has served me well on countless stocks and a myriad of smaller intra-day and swing trades.

2) Current resistance

The red line indicates the current resistance level. Lo and behold, we raced back towards that level and failed to punch through. For this rally to continue we will need to see a very strong break-out above the resistance level with heavy volume. And we're not seeing it. In fact, it looks like the rate is falling as I type.

3) Old support level

The green line is the old support level after the first leg-up of the rally. When major sell-offs occur you can usually expect some support to bunch up around the former support level, and I expect that if we see the market topple and plunge back toward the 50s. This line indicates nothing in and of itself, but I'm pointing it out so you will pay attention to it if/when the sell-off gets hot and heavy.

4) MACD

MACD (moving average convergence/divergence) is one of my favorite indicators. Right now, good ol' MACD is telling us that momentum is stalling. We failed (so far) to set a new high both in price and MACD. And I've highlighted the MACD resistance level with the red line. We've been over-extended and over-bought for quite some time, and in my own experience I've found that MACD wins the tug-of-war 9 times out of 10 (hence the reason I'm willing to risk my money on it). The shrinking of the green histogram also indicates stalling momentum, and our short-term MA is beginning to slope downward -- thus making the signal more bearish. I am currently watching for a cross in the MAs, and for both to fall below the signal line (zero).

5) Stochastics

Our stochastics are also pointing towards the over-bought condition. It's all been BUY BUY BUY for weeks on end, and this tells the tale of the weakening money-flow. If you take a look at how the stochastics correspond to previous rallies and sell-offs, you can see just how useful this indicator can be. And right now it's screaming "DONT BUY! DONT BUY! DONT BUY!".

------------------------------------------------------
CONCLUSION ::
------------------------------------------------------

Last time I was uncertain about what was to come... but this time I'm going to go out on a limb and make you a clear-cut suggestion: sell. I'm selling. We've all made a lot of money, and no one has ever been hurt taking a profit. Profit is money you didn't have before, and now you have it. So take it off the table and enjoy it. You can stay in the shark pool if you want, but do so at your own peril. It looks like the correction is indeed very close -- no one has infinite money to keep pushing the price to infinity, so a correction is going to happen. If you're patient and smart, you might be able to buy back your bitcoins in the $30s or $40s in another 7-14 days.... or at least in the 50s. So I think the smartest move you can make is to de-risk and go have some fun with your not-so-hard-earned money. :-)

However, there's another scenario which might take place. It might be that there's still enough money on the sidelines to drive this higher. If that is indeed the case, we're probably going to see the alternative crash scenario play out. The final "oomph!" before the blowout. Much like silver's huge over-night jump before the 2011 correction, we might see bitcoin tack on another +$25 and reach for the $100 mark (a key psychological level). If it plays out this way, the following crash will be much worse and longer-lasting than if it just goes ahead and corrects here. The reason is because a LOT more people will get burned a LOT worse and lose a LOT more money. So it will scare off a lot of newbies and people will be scared to re-enter the market for some time. So I hope it doesn't pan out this way.

In any case, I raise my cup to a bitcoin correction. I'm optimistic about the long-term future of bitcoin, but we're way over-extended (and way over-due) for a considerable correction. We need one to settle things down and give our great crypto-currency a chance to truly grow. So have fun, and good luck no matter what the outcome!

Regards,

--ATC--

NOTE ::

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I give my sincerest thanks to those who have sent me (quite generous) tips for some of my past articles and analysis!  Smiley

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Vladimir
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March 25, 2013, 02:23:23 AM
 #2

You call the top. I call continuation of the existing trend. I do not even need any charts and other mumbo jumbo.


Let's buy some popcorn now. We make a new all time high and I win.





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March 25, 2013, 02:33:32 AM
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Firstly, the power of your tests is lacking... we saw a "double-top" down in the 40s, we saw stochastics screaming overbought, etc, etc, etc.  

On the subject of resistance: We failed to punch through on a Sunday!  Oh no!  The rate is falling on light volume in the 1hr chart, which is hardly a strong sell signal.  Well, tomorrow the cavalry arrives, and we'll see whether we "fail to punch through" with a few million dollars more in rocket fuel Smiley

Does your point about Bitcoin adoption have any solid numbers behind it?  I can tell you that gox is flooded with new users, coinbase is flooded with new users, and blockchain.info is flooded with new users.  What do you have to show for your assertion that the user base has not even doubled?

And fundamentally, one question needs to be asked.  Can we really compare Bitcoin to bullshit companies that fueled the .com bubble, or useless tulips?  What I see is not a tulip, but a revolutionary technology.

(BFL)^2 < 0
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March 25, 2013, 02:39:25 AM
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So your prediction is that we'll revert to the exponential growth trendline (50s, maybe a brief stint below as overcorrection) and your advice is to "SELL"?! That same trendline that has us at $100 in just a few more weeks? You'd risk giving up your position just for a few tens of percents?

Yes, we'll be gladly taking your money. You and anyone who takes your advice. But thanks for helping to decentralize bitcoin wealth  Grin
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March 25, 2013, 02:41:52 AM
 #5

Wait. You are using an hourly chart to predict a major long term top? The analysis might work for a short term trade, but probably nothing more. Double tops that signal major downtrends don't usually occur just a few days apart, because when they do occur a few days apart, it means the dip was bought quickly. Major tops usually take a while to form, unless you have a blow-off top - i.e. a high-volume daily candle and a long upper tail. Go for if you want, but I'd keep a tight stop on it.  
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March 25, 2013, 02:50:47 AM
 #6

Great reading...learned alot...thanks. But I dont buy it...bitcoin has something about it that I don't think your thesis can model..its that intangible something that you can't quantify. I think all your point's are valid and well thought out...I just think that bitcoin is about to go viral thru the general public so it pretty much blow old CW out the door.

On second thought..I will buy it...tip sent for good literature.

zif

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March 25, 2013, 02:54:42 AM
 #7

this time I'm going to go out on a limb and make you a clear-cut suggestion: sell. I'm selling.
You call the top. I call continuation of the existing trend. I do not even need any charts and other mumbo jumbo.

Let's buy some popcorn now. We make a new all time high and I win.



PS: Good analysis, learned from it, but it's a technical one, I think you make a mistake in saying news is not fundamental because as more people becomes aware of bitcoin, demand will rise and so will price.

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March 25, 2013, 02:55:31 AM
 #8

You say in your fundamental analysis that "the math doesn't add up". But you don't provide any math. Let me provide some for you:

Bitcoin speculation as a % of overall bitcoin usage has been decreasing since the end of last year. I see this as a very positive sign:




Furthermore you base your initial reasoning on looking for "fundamental changes". This is a big bang. A new market. Not a static one. Fundamentals don't have to improve in order for the market to follow -- they have to remain the same.

Anyway...
FACT: inbound money flow to Gox is huge. FACT: The user base is growing exponentially. FACT: Analysis of online sources shows that this trend is strengthening. This renders your following observations utterly irrelevant:

- "Our stochastics are also pointing towards the over-bought condition. It's all been BUY BUY BUY for weeks on end, and this tells the tale of the weakening money-flow." --- not applicable to a nascent market

- "no one has infinite money to keep pushing the price to infinity, so a correction is going to happen" --- completely irrelevant

Given this, the rest is just "blah blah blah".

If you want to turn a profit, do it. If you want to buy in lower, write this post 3 days ago. But this thread is pointless now.

TL;DR: I think your fundamental analysis is off, and your conclusions are wrong. Furthermore if this post is timed for manipulative impact, you're about 3 days too late.

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March 25, 2013, 03:07:19 AM
 #9

I would like to add some of my own insight. I talked to ATC here recently and we seem to have a good fix on the market. ATC is a day tarder and he is a lot better with detailed emarketing standpoints were I am more of a psychological/sociological spin on his statistics. I normally leave the explanations to him, and help him more behind the scenes but I will step out of the shadows and give my input.

Quote from: ATC777
However, there's another scenario which might take place. It might be that there's still enough money on the sidelines to drive this higher. If that is indeed the case, we're probably going to see the alternative crash scenario play out. The final "oomph!" before the blowout. Much like silver's huge over-night jump before the 2011 correction, we might see bitcoin tack on another +$25 and reach for the $100 mark (a key psychological level). If it plays out this way, the following crash will be much worse and longer-lasting than if it just goes ahead and corrects here. The reason is because a LOT more people will get burned a LOT worse and lose a LOT more money. So it will scare off a lot of newbies and people will be scared to re-enter the market for some time. So I hope it doesn't pan out this way.

In 2011 we saw a somewhat similar situation except on a much smaller scale. There were less Bitcoin participants and a lot less capital invested in Bitcoins. Not to mention Bitcoins were going steady at $10 or less. The price surged up due to a article seen here--> http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/ Which brought in a lot of new people causing an influx in sale volume which in turn drives the price up. We have seen that here recently as well, however as far as I can tell it is more due to people noticing a stable environment to "get rich quick" invest 10k and get 20k back in 2 days. Well eventually people run out of money to keep throwing into the mix.

And something like this Happens


Nearly 160 THOUSAND Dollars worth of sale volume and the price surged to ~30 USD per bitcoin. But look what happens when it falls! Not even enough sale volume to put it on the map.Bitcoins plummeted this is an auto correct in the very nature of trading. It is human nature to want more money. Money is the key to everything. The normal train of thought also show us when to hold our money to save it. But there are other contributing factors, Take for example somewhat at a Casino. The average person loses terribly and walk away. Then there is another small percentage that wins big by cashing out at the right time. As seen in the previous chart between the 12th and the 17th maid a profit even if it was a slim one. Like ATC said here:
Quote from: ATC77
We've all made a lot of money, and no one has ever been hurt taking a profit. Profit is money you didn't have before, and now you have it. So take it off the table and enjoy it

So I suggest learning from past mistakes and making that little bit of profit otherwise you will be feeling like the people on the 21st through the 24th with no one to sell to (Hardly any sale volume at all, Newbies moved out along with a lot of the big money)
As seen here:
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March 25, 2013, 03:08:50 AM
 #10

Does your point about Bitcoin adoption have any solid numbers behind it?  I can tell you that gox is flooded with new users, coinbase is flooded with new users, and blockchain.info is flooded with new users.  What do you have to show for your assertion that the user base has not even doubled?

PS: Good analysis, learned from it, but it's a technical one, I think you make a mistake in saying news is not fundamental because as more people becomes aware of bitcoin, demand will rise and so will price.

I believe my last reply perfectly fit this part of your posts guys
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March 25, 2013, 03:14:13 AM
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I don't think your analysis is correct because bitcoins are a complete novelty and CANNOT be compared with traditional stock markets. This doesn't look like a speculative bubble, it looks as if the bitcoin is slowly reaching it's "correct" price. With only 21m bitcoins that can be mined (not a lot), and the widespread adoption of it, prices are set to be higher than 1,000$.

In fact, the more news coverage it gets, the higher the prices will be. Bitcoins aren't known by a lot of people, in comparison to silver. If silver gets news coverage, people won't "learn" about it. When people learn about bitcoins, they either get skeptical or heavily enthusiastic about it.

What makes bitcoin so valuable is decentralization. I think what's happening in Cyprus and the EU is very good for the evolution of our economic systems, because now people are finding out how much BS fiat paper is. What you have though with bitcoins is very tempting: decentralization, no "withdrawal limits", no wallets that can be seized, no taxes unless you convert to fiat currency, anonymity in an Orwellian world...

You are selling? I'll gladly take your bitcoins in exchange of my worthless canadian dollars Smiley

However, I enjoyed reading your analysis. I am a noob at trading (though I made a great move when buying LTCs at 0,0055 btc and selling at 0.015), but to me it seems evident that the rocket is NOT about to stop anytime soon. Sure, corrections will happen but having invested at 8$ a bitcoin I see no point in selling right now. I'm in for the long term, and I believe a lot of people are too.
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March 25, 2013, 03:14:45 AM
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Does your point about Bitcoin adoption have any solid numbers behind it?  I can tell you that gox is flooded with new users, coinbase is flooded with new users, and blockchain.info is flooded with new users.  What do you have to show for your assertion that the user base has not even doubled?

PS: Good analysis, learned from it, but it's a technical one, I think you make a mistake in saying news is not fundamental because as more people becomes aware of bitcoin, demand will rise and so will price.

I believe my last reply perfectly fit this part of your posts guys

Not really.

I just see a lot of words by 24 year-olds extrapolating irrelevant past events to the current market. The way he wrote about MACD tries to make him sound like a market veteran. It's not only misleading (you've seen this "nine times out of ten"? What an illustrious career you must have had!); This is pseudo-technical mumbo-jumbo.

I hope that people reading this advice will do their own due diligence and realise what you two are trying to do here. The shakedown already happened this weekend. You're late to the party. As usual, another week comes and brings new liquidity and buying pressure with it.

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March 25, 2013, 03:21:23 AM
 #13

Anybody who wants to bet against ATC's predictions can bet against him here https://bitcointalk.org/index.php?topic=157325.0 Since most of you seem dead set on your points.
Also I am willing to make some personal wagers of my own. PM me if your interested in making a wager
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March 25, 2013, 03:27:50 AM
 #14

I don't gamble; I make calculated investment decisions. No way I'm sending my money to either of your addresses to bet against you.

To newcomers: These guys are betting against the market. Hence this thread. Hold firm.

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March 25, 2013, 03:30:16 AM
 #15

If it goes over a hundred i'll go a lot higher.

$72 barrier might be broken tmr or we might get a reversal.

Exponential growth is not normal to those people.

Right now i'm unsure we are in the right state for a bubble.  People aren't euphoric we need to wait for it to go past $100.  And because so many people are interested in buying again still so it'll probably go back up like in that graph.
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March 25, 2013, 03:32:36 AM
 #16

I don't gamble; I make calculated investment decisions. No way I'm sending my money to either of your addresses to bet against you.

To newcomers: These guys are betting against the market. Hence this thread. Hold firm.
To newcomers: Me and ATC have been in bitcoin a lot longer than BitPriate
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March 25, 2013, 03:35:41 AM
 #17

I don't gamble; I make calculated investment decisions. No way I'm sending my money to either of your addresses to bet against you.

To newcomers: These guys are betting against the market. Hence this thread. Hold firm.
To newcomers: Me and ATC have been in bitcoin a lot longer than BitPriate

And I've been around a lot longer than the both of you.  I was there in the crash, watched it go down to $2 live on goxlive, and knew one of the people who sold below $2 in November '11 ($1.994 was hit momentarily).  The temptation to sell was strong.  I held all the way through and now I'm very glad for it.  This is not June '11, not by a long shot.  We have fundamentals this time.

(BFL)^2 < 0
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March 25, 2013, 03:37:04 AM
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I don't gamble; I make calculated investment decisions. No way I'm sending my money to either of your addresses to bet against you.

To newcomers: These guys are betting against the market. Hence this thread. Hold firm.
To newcomers: Me and ATC have been in bitcoin a lot longer than BitPriate

LOL@DECEMBER 2012 FORUM ACCOUNTS

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March 25, 2013, 03:40:12 AM
 #19

You call the top. I call continuation of the existing trend. I do not even need any charts and other mumbo jumbo.


Let's buy some popcorn now. We make a new all time high and I win.

+1

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March 25, 2013, 03:42:07 AM
 #20

ATC I want my 6 minutes of life back that I lost reading all that bull crap!

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