Looking Into the Abyss How Much Lower Can It Go?
Just over a month ago, prices were within a stone’s throw of $10,000 Bitcoin. Now, investors are looking over the ledge and wondering how far prices could fall if they break below $6,500 support.
Over the weekend, prices broke below the trend line of the symmetrical triangle that had been forming on the daily and weekly charts and now Bitcoin is testing a key support area.
There was a strong low was established in late March & early April at $6500. Combined with the washout low in February, the case for a double bottom was strong. However, the bounces would shorter each time and created a falling resistance line.
While there is the potential for a triple bottom to form here, the more likely pattern to play out is the descending triangle. This means that support at the April lows will likely fail and Bitcoin would see a new 2018 low. I had hoped to see prices bottom in April but with the recent break of the rising support line, that is no longer the expectation.
So how much further can it go?
I’ll consider some fundamental aspects, but first let’s take a look at the charts.
The chart above shows the daily price from August 2017 through 2018. The strong support level is the last big base that formed during the September correction which culminated in a breakout above $5,000 in early October. Above that there is minor support at 5800 which was the low during the Segwit 2X cancelation and subsequent “Bitcoin Cash Flippening” scare.
Using a Fibonacci retracement analysis for the entire bull move, prices have already breached the .382 & .618 levels. The .786 level is just above $4,800 which also lines up with the strong price support level.
Fundamental Factors
Finally, looking at the fundamentals, the cost to mine one Bitcoin is often cited as a floor for prices since miners would begin shutting down if prices stayed below the cost-basis for too long.
MarketWatch recently published an article looking at the electricity costs to mine one Bitcoin. The average cost for the U.S., Russia and Iceland is around $4700. Keep in mind that this does not include the cost of the mining equipment, facilities and staff needed to maintain large operations. Factoring those costs in would bring the estimate to at least $5000 per Bitcoin.
There are still some analysts calling for $3000 Bitcoin which would align with the strong price floor established during the summer of 2017. While anything could happen, I expect the zone around $5K to be the floor. With institutional support growing and the potential for an ETF approval this year, value investors would begin buying aggressively if prices went below $5000.
2018 has been a tough year for the holder but it has made for an ideal trading environment. On my trading account, it ultimately doesn't matter what prices do since I can get out of the way quickly and lock in gains during the periodic uptrends.
However, from a long-term investment perspective, we all want to see the steady price growth and new highs again. I continue to believe we will ultimately see new all-time highs in Bitcoin. However, after the massive run up we saw in 2017, we may need to wait longer for prices to consolidate further before a new bull begins.
Now the Altcoins
During these sell-offs, I’m always looking for relative strength in the Altcoins. Which names are holding up best? Which names bottom out first and charge higher before Bitcoin is done correcting? Which start outperforming on they way up?
Going into this week, there are few names on my radar:
BNB
BCH
ETH
ONT
DCR
DGB
NULS
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