After touching USD$20,000 this past week, the Bitcoin price has reversed and has traded below $13,000 so far. At the time or writing, the price was slightly above USD$13,000. That's roughly a 35% correction in just a couple days.
Why such volatility? And why is it moving down when the Crypto currency gurus tell us it's on its way to $100,000 - and then to a cool $Million?? How can this be?
Buy on rumor, sell on News
There's an old adage on Wall Street. And today we're getting a first hand classic example of a "buy the rumor, sell the news" situation. This past week, Bitcoin futures began trading in the mainstream markets. Crypto currency promoters and speculators were exceedingly bullish about this, since it was believed it would boost demand bring in many mainstream investors who were previously not into Bitcoin. Increased demand + constant supply = Higher Prices. At least that's what everyone thought....
WRONG! So much money, in the form of panic buying came into Bitcoin in the weeks leading up to futures trading, that an unsustainable parabolic rise was created. And as often happens in these cases - the price rise PRIOR to the event was far too much, too fast, and therefore, unsustainable. So when the event finally takes place - profit taking by short term speculators overwhelms any demand created by the actual event. In fact it could be worse than that - many Futures market players are very likely selling Bitcoin short, placing additional selling pressure on the price. The result: prices violently revert to the mean average.
Source: https://bitcoincharts.com/charts/bitstampUSD#rg360ztgSzm1g10zm2g25zxzi4gVolzv
Target
Many technicians say that one a parabolic formation is broken - all the gains are given back and the price reverts back to the mean average or the break out point. Just eyeballing the chart (there are no "fundamentals" by which to price it) I'm guesstimating serious technical support exists in the USD$8,000 area. It may not need to go there. Maybe the very large number of USD$10,000 combined with a close to 50% Fibonacci correction maybe be enough distance to clear out sellers and bring in enough bargain hunting speculators.
What do YOU think? Where do you believe the price may bottom? And do you think this is a correction within an ongoing Bull market? Or do you believe the bubble has permanently burst? I'd love to hear your opinions in the comments below!
Louis Paquette
Vancouver, Canada
(NOTE: This is NOT to be considered investment advice, but merely my personal observations and opinions. Seek advice from a registered financial advisor. I consider all cryptocurrencies to be highly speculative and you should only place money that you are willing to completely lose into them).