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Author Topic: Fallacy of seeing bitcoin price "Support Levels" only in U.S. Dollar terms  (Read 1334 times)
allgoodthings1
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September 19, 2014, 10:53:40 PM
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A lot of folks are talking about bitcoin price support levels at (for example) $411 and $340, applying traditional technical analysis to price charts of bitcoin in USD. Such a cursory notion misses one very important point: Bitcoin is not traded only in America! It is a true world currency, bought and sold by people all over the globe.

And people in Europe, China, Japan, and Argentina all have charts of the bitcoin price in their own local currency that can look significantly different than U.S. charts in dollars. Fiat currencies do themselves go up and down in value with respect to each other, sometimes dramatically -- as has been the case of EUR vs. USD over the past few months.

So, is the support marked by the USD low at $411 of significance at all to the European or Chinese, who see that same date-point on their charts much differently than we do vis-a-vis current price action?  Not at all.  This is a far different exercise than finding support levels on charts of domestic stocks, traded exclusively in dollars, or in bi-currency ratios (like EUR/USD).

I would argue:  Till someone comes up with a FIAT index -- weighted by all the world currencies participating in the bitcoin marketplace -- and we plot BTC/FIAT to see technical support levels from that chart, then all this pointing to BTC/USD levels is but vain and narrow-minded speculation.

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September 20, 2014, 01:36:55 AM
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Arbitrage should theoretically close this gap in the longer run. A Canadian study found a lack of arbitrage opportunity in closing prices over a month, which would indicate that shorter term arbitrage opportunities are being closed, as one would expect. http://www.coindesk.com/bank-canada-research-cryptocurrency-arbitrage-doesnt-exist/

Are you sure these price differences you're seeing can't be explained by exchange fees? I wonder if the differences in price, up to the point that arbitrage becomes unprofitable, would indicate a country's relative interest in BTC since one currency must have a higher relative value?

A fiat-index as you've suggested should be unnecessary, if not now then when the market matures.
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September 20, 2014, 02:15:51 AM
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The way I think about fiat exchange value for Bitcoin, it is essentially the world examining this new entity for the first time, sizing it up, figuring out what it's worth might be to us. That's why it's so volatile. Most people aren't sure. Most people don't know enough about it.

In the end, one thing is for sure. I mean honestly, how long do any of you think this shit is sustainable, even without crypto in the picture?



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September 20, 2014, 05:50:42 AM
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A lot of folks are talking about bitcoin price support levels at (for example) $411 and $340, applying traditional technical analysis to price charts of bitcoin in USD. Such a cursory notion misses one very important point: Bitcoin is not traded only in America! It is a true world currency, bought and sold by people all over the globe.

And people in Europe, China, Japan, and Argentina all have charts of the bitcoin price in their own local currency that can look significantly different than U.S. charts in dollars. Fiat currencies do themselves go up and down in value with respect to each other, sometimes dramatically -- as has been the case of EUR vs. USD over the past few months.

So, is the support marked by the USD low at $411 of significance at all to the European or Chinese, who see that same date-point on their charts much differently than we do vis-a-vis current price action?  Not at all.  This is a far different exercise than finding support levels on charts of domestic stocks, traded exclusively in dollars, or in bi-currency ratios (like EUR/USD).

I would argue:  Till someone comes up with a FIAT index -- weighted by all the world currencies participating in the bitcoin marketplace -- and we plot BTC/FIAT to see technical support levels from that chart, then all this pointing to BTC/USD levels is but vain and narrow-minded speculation.

I have often wondered this, as you mentioned index, does the actual value of the USD effect the USD/BTC price? since there is no index I would assume no.

Example Gold value has a drastic impact on the value of the USD so lets say China is exporting Oil to USA and this month is the month USA will purchase and exchange the USD for the Yuan. this should push the price of USD down, however if the price of Gold drastically falls 100 to 500 dollars a gram it will force the value of the USD up. So in a sense the value of the USD/CNY will not move or even increase instead of fall.

Do things like this work in the BTC market against the USD? If the value of USD falls will it show and increase in the BTC value against it?

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September 20, 2014, 01:42:06 PM
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A lot of folks are talking about bitcoin price support levels at (for example) $411 and $340, applying traditional technical analysis to price charts of bitcoin in USD. Such a cursory notion misses one very important point: Bitcoin is not traded only in America! It is a true world currency, bought and sold by people all over the globe.

And people in Europe, China, Japan, and Argentina all have charts of the bitcoin price in their own local currency that can look significantly different than U.S. charts in dollars. Fiat currencies do themselves go up and down in value with respect to each other, sometimes dramatically -- as has been the case of EUR vs. USD over the past few months.

So, is the support marked by the USD low at $411 of significance at all to the European or Chinese, who see that same date-point on their charts much differently than we do vis-a-vis current price action?  Not at all.  This is a far different exercise than finding support levels on charts of domestic stocks, traded exclusively in dollars, or in bi-currency ratios (like EUR/USD).

I would argue:  Till someone comes up with a FIAT index -- weighted by all the world currencies participating in the bitcoin marketplace -- and we plot BTC/FIAT to see technical support levels from that chart, then all this pointing to BTC/USD levels is but vain and narrow-minded speculation.

Well you have a point, but I would say that even if everyone were looking at the same chart (BTC/USD), its irrelevant
anyway because the market is so thin that technical analysis doesn't strongly apply.  In other words, a single large
sell or buy order is going to move the market, so its more in the hands of fewer players on any given day, and
less in the hands of the collective consciousness of traders who may be looking at S/R levels.

leannemckim46
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September 20, 2014, 10:50:08 PM
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A lot of folks are talking about bitcoin price support levels at (for example) $411 and $340, applying traditional technical analysis to price charts of bitcoin in USD. Such a cursory notion misses one very important point: Bitcoin is not traded only in America! It is a true world currency, bought and sold by people all over the globe.

And people in Europe, China, Japan, and Argentina all have charts of the bitcoin price in their own local currency that can look significantly different than U.S. charts in dollars. Fiat currencies do themselves go up and down in value with respect to each other, sometimes dramatically -- as has been the case of EUR vs. USD over the past few months.

So, is the support marked by the USD low at $411 of significance at all to the European or Chinese, who see that same date-point on their charts much differently than we do vis-a-vis current price action?  Not at all.  This is a far different exercise than finding support levels on charts of domestic stocks, traded exclusively in dollars, or in bi-currency ratios (like EUR/USD).

I would argue:  Till someone comes up with a FIAT index -- weighted by all the world currencies participating in the bitcoin marketplace -- and we plot BTC/FIAT to see technical support levels from that chart, then all this pointing to BTC/USD levels is but vain and narrow-minded speculation.
Most bitcoin/fiat trade is done in terms of dollars. Even investors overseas (whose national currency is something other then dollars) will often trade in terms of dollars. When you convert euros or yen or british pounds to dollars you can get the equivalent of the respective currency and the amount of 411 US$ will be the support level.

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allgoodthings1
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September 20, 2014, 11:27:25 PM
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Most bitcoin/fiat trade is done in terms of dollars. Even investors overseas (whose national currency is something other then dollars) will often trade in terms of dollars. When you convert euros or yen or british pounds to dollars you can get the equivalent of the respective currency and the amount of 411 US$ will be the support level.

Wow! Americans can be even more myopic than I thought!

* You can look at any credible data of world bitcoin trading (bitcoin <-> fiat), and there's more done in just Europe and Asia combined than there is in the U.S. And,

* Why would any European or Asian entity change their local currency to dollars to buy bitcoin in a local exchange? Regional exchange mechanisms accept regional currencies.. and the dollar, to be sure. And Americans often send dollars to foreign exchanges to buy bitcoin with dollars.  But the locals have no reason to convert their local currencies to dollars to use those same exchanges. It just doesn't happen. And finally,

* How has that "$411 support level" been working for us? The market actually accelerated downward as it broke through that level, and reversed clear down at about 380. That pseudo-support level provided no support at all -- and that's my whole point.

The sooner we stop extrapolating bitcoin price trajectories based solely on charts of the U.S. currency, the sooner we'll have meaningful tools of technical analysis in this new arena.

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dankkk
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September 21, 2014, 07:01:07 AM
 #8

A lot of folks are talking about bitcoin price support levels at (for example) $411 and $340, applying traditional technical analysis to price charts of bitcoin in USD. Such a cursory notion misses one very important point: Bitcoin is not traded only in America! It is a true world currency, bought and sold by people all over the globe.

And people in Europe, China, Japan, and Argentina all have charts of the bitcoin price in their own local currency that can look significantly different than U.S. charts in dollars. Fiat currencies do themselves go up and down in value with respect to each other, sometimes dramatically -- as has been the case of EUR vs. USD over the past few months.

So, is the support marked by the USD low at $411 of significance at all to the European or Chinese, who see that same date-point on their charts much differently than we do vis-a-vis current price action?  Not at all.  This is a far different exercise than finding support levels on charts of domestic stocks, traded exclusively in dollars, or in bi-currency ratios (like EUR/USD).

I would argue:  Till someone comes up with a FIAT index -- weighted by all the world currencies participating in the bitcoin marketplace -- and we plot BTC/FIAT to see technical support levels from that chart, then all this pointing to BTC/USD levels is but vain and narrow-minded speculation.

Well you have a point, but I would say that even if everyone were looking at the same chart (BTC/USD), its irrelevant
anyway because the market is so thin that technical analysis doesn't strongly apply.  In other words, a single large
sell or buy order is going to move the market, so its more in the hands of fewer players on any given day, and
less in the hands of the collective consciousness of traders who may be looking at S/R levels.
Even thin markets can have support and resistance levels. All these levels are is levels that tend to have strong buying and selling volumes when the price approach these levels.
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