The purpose of this analysis is to provide the reader with information to help him/her decide the right course of action for his/her investments. Nobody has the crystal ball to precisely predict the price movement of stocks or cryptos. Otherwise, this person would be a billionaire in just a matter of days.
Synopsis:
1.) Using the Fibonacci principle, bitcoin needs to drop to $5,336 before it could continue its march to its next all-time-high (ATH).
2.) A contrary analysis suggests that the current correction is complete since bitcoin already lost 33% of its value from its ATH - a pattern consistent with its historical price movement.
3.) Bitcoin's personality has been constantly changing, making it more and more difficult to predict its next move.
Just like a stock, a crypto has a personality defined by the personality of its investors. Prior to December 2017, bitcoin's personality was characterized by aggressiveness and decisiveness. After the launching of the bitcoin futures, bitcoin's aggressive and decisive nature has toned down. In the following technical analysis, I'm approaching it in two angles: (1) bitcoin's historical price data; and (2) bitcoin's ever-changing personality. In other words, the price graph analysis will tell us the possible scenarios for bitcoin and its personality will tell us which of these scenarios is the most likely path it will take.
Historical Data
Bitcoin's recent 2 corrections were at $3,000 and $5,000 respectively (rounded to the nearest thousands as the numbers vary depending on which exchange you are using). In each of these corrections, bitcoin lost about 1/3 of its value. Below is a table to easily visualize the trend:
source: https://www.worldcoinindex.com/coin/bitcoin
Looking at the above table, two things stand out:
- The jump from $4.500 to $19,000 looks overly aggressive and unsustainable.
- Current correction is complete since bitcoin lost 33% of its value from its all-time-high (ATH)
Let's examine the first bullet point above. Following the Fibonacci principle, bitcoin's ATHs should match the following sequence $1,000; $2,000; $3,000; $5,000; $8,000; $13,000; $21,000 etc. For each of these ATHs, a major correction should occur in order for it to continue its ascent. Using these numbers, it is clear that bitcoin skipped two of these numbers which means, there should have been a major correction at $8k and $13k. We all know why no corrections occurred at these levels. Here's the clue - hardforks and futures. Yes, the 3 bitcoin hard forks and the much-anticipated launch of bitcoin futures in December 2017 pushed bitcoin's price to $19,000 without any major corrections.
For those unfamiliar with the Fibonacci numbers, here's a brief explanation: the numbers are derived by adding the last two preceding numbers. Hence, the Fibonacci series looks like this: 1, 1, 2, 3, 5, 8, 13, 21 etc. Mr. Fibonacci claims that these numbers can be found in almost everything on earth. The measurement of the nautilus shell follows these number sequence. The branches of a tree match the Fibonacci number sequence and similarly, the dimensions of the human body can be explained by these numbers. In other words, Fibonacci is the numerical formula for God's creation. Now, stock chartists also discovered that the stock chart patterns (and crypto charts for this matter) also follows the Fibonacci numbers.
This leads us to the next bullet point above - is the drop to $12,766 enough to continue the uptrend? This is the million dollar question at the moment which we are attempting to shed light on. Let me frame the question in a different way - since bitcoin already lost 33% of its value from its ATH, is the current correction over? The answer is clearly YES would you agree?
If you ask Mr. Fibonacci, his answer would be NO. To understand this, I plugged in the two missing Fibonacci numbers (in blue text) in the bitcoin's price history below:
In the Fibonacci series 1,1,2,3,5,8,13,21 etc "8" and "13" were skipped in its ATHs. So in the strictest interpretation of the Fibonacci principle, bitcoin should drop to the lower of the two "missed" corrections which is $5,336.
Personality
The personality of a stock dictates the fashion in which it will ascend to its ATHs as well drop to its lows. Warren Buffet who wanted to understand how stocks behave took a course in psychology. His reasoning was, if you want to understand a stock, you need to understand the human behaviors (personalities) that comprise it.
As mentioned above, prior to December 2017, bitcoin's personality was characterized by pure aggressiveness and decisiveness. This was marked by sharp increase and decrease in its price. During its ascent to its next ATH following a correction, it gets the job done without any hesitation. When it needs to correct, it does so in similar fashion. However, starting December, bitcoin's personality changed. Decisiveness was temporarily replaced by hesitation. All of the sudden, the Yin and the Yang have equal strength, short sellers and buyers are equal in number. This change in bitcoin's personality was predicted when proponents of the first bitcoin futures claimed that approval by the SEC of its futures will reduce the volatility in bitcoin's price movement.
Three attempts by the BEAR vs two attempts by the BULL
Short sellers already attempted three times to break the support level of $12,000 with no success. At the time of writing, it's the bull's turn to try (for the third time) to breach the resistance level of $16,000.
Price Drop and Jump Measurements
If the bull breaches the $16,000 resistance, bitcoin's price will hit $20,000 and this price level will become the support for its ascent to its next ATH of $34,000 and $55,000 (the next numbers in the Fibonacci series).
Should the bear breaks the $12,000 support line, the next price target is $8,000 which will become the next resistance line for the bear to launch from to reach the bottom of the correction which is $5,336 according to Fibonacci series.
Conclusion:
Nobody holds a crystal ball to precisely predict bitcoin's price at any given time (except for the enigmatic Wall Street wiz Andrew Carlssin who claims to be a time-traveler from the year 2256! He was arrested by the Feds after he turned $850 to $350 million just by 126 consecutive high-risk trades over two weeks). However, at the time of this writing, the ball is with the bull. It's the bull's third attempt to breach the resistance level while the bear has fully exhausted its three unsuccesful attempts. Further, the 3 attempts on each side creates a symmetrical triangle which gives the bull another advantage: symmetrical triangle is known to continue the trend with a 75% probability. This means, bitcoin has 75% chance that it will contiinue its ascent to its new ATH. One thing to remember though, WAIT for the BREAK OUT. It's the break out that will confirm the price direction.