Bitcoin Comes Roaring Back and Then Fails Again

Bitcoin Comes Roaring Back and Then Fails Again
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It has been a rough 2018 for Bitcoin and the digital currency asset class. After rising to a high of over $800 billion in December 2017, the market cap of all cryptocurrencies fell to close to $200 billion in 2018. Bitcoin which had traded to a high of $19,343.04 in mid-December of last year, fell to a low of $5,848.26 in late June, a decline of almost seventy percent.

Bitcoin is the leader of the pack when it comes to the world of digital currencies, and after a period when the king of cryptos was front page financial news on a daily, if not hourly, basis throughout the latter part of 2017, poor performance in 2018 caused coverage to decline dramatically.

There is nothing like a roaring bull market to stoke the fires of speculation and bring new market participants to a novel asset. Additionally, the potential for quick and easy riches is a powerful magnet for capital. Just think of what happens when a lotto bounty rises to hundreds of millions of dollars. Despite the low odds of a win, people will line up for the outside chance that they may find themselves with that one in many million odds of holding a winning jackpot ticket. An investment in Bitcoin in 2010 yielded lotto-like returns considering a one dollar investment at six cents was worth over $320,000 last December.

Those who came to the Bitcoin frenzy late in the game in 2017 and bought at lofty prices above the $10,000 level were left in the lurch throughout most of 2018. 

Source: Coindesk

As the chart highlights, the price of Bitcoin made lower highs and lower lows since its December 2017 peak throughout 2018 reaching its most recent bottom at under $6000 in late June. However, over recent weeks there have been signs of life in the digital currency market and Bitcoin could be awakening from its bearish slumber. 

Source: Coindesk

As the three-month chart shows, after making a low in late June, Bitcoin has been making higher lows and higher highs trading to a peak of just under $8400 on July 24. Technical resistance stands at the early May high of $9,826.60. A move above $10,000 would negate the bearish technical pattern that has been in place since late 2017 and could launch another frenzy of buying putting Bitcoin and the asset class back on the front pages of the financial news cycle. Bitcoin proceeded to stumble at the end of July and in early August as news that the SEC once again denied the infamous Winklevoss twins’ application for a Bitcoin ETF product.

Whether Bitcoin climbs above its technical resistance level or fails and retests or falls below its 2018 low will depend on the herd of buyers or sellers to the immature market. While the argument for digital currencies remains a hot topic for debate between proponents and detractors, the inspiring thing about this market is its price volatility. From the week of July 21 through August 4, Bitcoin traded in a range from just under $7,000 to $8,400 a band of $1,400 or 20%, and this type of price variance is the norm, rather than the exception, for the digital currency which tends to post double-digit percentage gains and losses on a weekly basis. Based on the volatility in the price of Bitcoin, there may be no other asset in the markets today that offer traders a similar price action on a consistent basis.

Volatility may be frustrating for those who buy and hold assets like Bitcoin, but for traders who look to profit from price moves to the up and downside, this market is a carnival of opportunity. 

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