A little under three weeks ago we outlined our thoughts that Bitcoin was in the process of basing after falling over 70% from the high it traded in December 2017, just 7 months earlier. As noted in the article “Bitcoin finding a base?” https://www.cityindex.com.au/market-analysis/bitcoin-finding-a-base/ the savage decline silenced even some of the most vocal and positive cryptocurrency enthusiasts, perhaps providing a clue to traders. The use of the word “traders” as opposed to investors in this sentence is important. Allow me to explain why.
It wasn’t really until the second half of 2017 that my view of cryptocurrencies began to change. I remember around that time catching up with a former client, who I consider to be one of the brightest young minds in the local market. Chat turned to cryptocurrencies and I remember him saying about blockchain and cryptocurrencies “Tony the value of the technology is beyond question. However, what we do need to understand better is appropriate valuations.”
Issues over valuations remain a point of open debate. To determine an accurate valuation, we need to know or be able to assess the economic value that a new technology offers. Given the decentralised, unregulated and largely anonymous nature of cryptocurrencies, the very features that appeal to many users, it makes valuation tasks difficult.
While there are literally thousands of companies and business that allow customers to pay for goods and services with cryptocurrencies, surveys suggest 90% of Bitcoin holders hold Bitcoin and other cryptocurrencies for speculating and for investment reasons.
As risk takers, traders should be aware of new opportunities and markets when they arise. However, it is important to be clear as to whether you are interested in the market as a trader or an investor with a longer-term time horizon. I consider myself a trader and given an inability to value cryptocurrencies accurately, I find it difficult to justify trading cryptocurrencies for investment reasons. Rightly or wrongly, I therefore treat a trade in Bitcoin no differently to the way I would treat a trade in a currency pair or a stock index.
With that in mind, here is an update to the Bitcoin trade idea outlined in early July.
If you may recall, the Bitcoin basing view had a lot of technical analysis reasoning behind it, including bullish diverging momentum, the possibility of Wave 5 low in Elliott wave terms and a potential inverted “head and shoulders” bottom. Generally speaking, the more technical reasons I can find to take a trade the better!!
The move thus far has played out as expected after Bitcoin held the support noted at 6100 and then broke above a key resistance level at 6900. After reaching an area of former highs in the 7500/7900 band overnight, I have taken profit on part of my long position and I will take this opportunity to raise the stop loss on the balance of the long position from 6100 to 6700.
The next objective for the up move is the 8500/8700 region which includes the area of the 200-day moving average where I aim to take profit on another portion of my long position. Keep in mind for an indication that the recent bounce could develop into a more prolonged uptrend, a daily close above the 200-day moving average ~8700 would be a positive development.
Source Tradingview. The figures stated are as of the 24th of July 2018. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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