Crypto-Carnage Gives Way to Steadying Prices

The meltdown this week in cryptocurrencies is very likely a near-term bottom.  The expiration of the first CBOE futures contract seemed to play a role in the violent moves in prices.

The steady stream of conflicting rhetoric from regulators around the world didn’t help matters.  But, this is to be expected as once we see the players within a market change the trading character should change along with it.

And Wall St. listens far more to the pronouncements of government officials than retail investors and hard asset enthusiasts.  But, by the same token, Bitcoin’s correction barely flirted with the breakout point above $8000, the high created after the failure of the New York Agreement to implement Segwit 2x.

So, from a technical perspective Bitcoin is in a tenuous position right now with the December 22nd low of $10,718 providing a key level of support.  Looking at the daily chart from this week it’s clear how important this line is as we have yet to get a close below that mark.

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Figure 1: Bitcoin Daily Chart from 1/19/2018

And for those spooked by the sell-off that’s the point of moves like this; to shake out weak hands and decide whether this is the beginning of a new bear market or a correction within a primary bull market.

Given the volatility of the cryptocurrency markets it will take more than this to make that decision.  There is at least one more technically-significant up-move on the horizon that should take Bitcoin back above $14,000.  The key will be moving through the current resistance at $11,700 today to avoid a weekly two-bar reversal ($12,200) by Sunday.

This correction has tempered some of the enthusiasm and will likely make it more difficult for Bitcoin to put on the kinds of massive moves we saw in 2017.

Between futures trading, the potential for leveraged ETF’s coming in and the lack of real liquidity on most of the exchanges, a lot of crypto-investors got first-hand knowledge about how hard it is to form an exit-strategy when the exits have been blocked off.

It’s incumbent on government officials to get their story straight soon and end the uncertainty surrounding tax policies, ‘crackdowns’ on trading, etc. or soon people will come to realize that all that talk about consumer protection is a lie.

Consumers aren’t protected by uncertain policy which can be exploited by large players in the markets to move them down.  Wall St.’s hostility to cryptocurrencies is obvious as is that of many government agencies.

So, at some point these headlines coming from South Korea and China will have less and less effect.  Moreover, if the dollar continues to be under pressure, Bitcoin and the rest of the crypto-complex should firm up.

This is a crucial couple of days, stay nimble.


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