Morning all.
Another green week for Bitcoin but I’ve noticed a change in sentiment starting to appear and I’m wondering if we now need to get ready for a correction.
Price managed to clip $16,500 during the week and it’s really been on a tear since it left the $10,000 area and shown amazing momentum, the only pause being the spike in volatility around the election.
During the week I saw some traders start to highlight the fact that Bitcoin was overbought on pretty much every technical indicator and to add to that famed Hedge Fund Manager Ray Dalio gave an interview where he said if bitcoin or other cryptos become “material,” governments will “outlaw” it. “They’ll use whatever teeth they have to enforce that.”. He also added “I don’t think digital currencies will succeed in the way people hope they would”.
That’s just one voice and on the other side of the (bit)coin we’ve had equally respected but maybe less well known Stanley Druckenmiller reveal his interest in Bitcoin.
Whether coincidence or acting as a catalyst, this has lead to some analysts looking back to the 2017 rally and highlighting that there were several 20-30% corrections during the big rally that took Bitcoin to nearly $20,000.
After the rally we saw in the Summer there was a 21% correction but since then the rally has continued to pick-up pace, especially if you look on the weekly chart at the candles there.
Another 21% correction from the high we just reached at $16,500 would bring price down to just above $13,000 and that would also match a 50% fib retracement of this post Summer rally. From a technical perspective this kind of move has been done many times, but I think we’ve got so used to the strength over the last couple of months that it becomes harder to imagine, and it certainly looks scary if you look at the red dotted line I’ve put in the chart.
A more extensive correction of 30%, as did happen during the 2017 rally, would send price down to the $11,550 area.
I definitely think that a 20-25% correction would be healthy to help remove talk of this being a bubble, to let technical indicators cool-off, moving averages flatten out a bit and also give potential investors less fear to start buying.
And while I’m not forecasting such a correction, I can see how it could gather steam once it gets started. Since the big $450 million purchase of Bitcoin by MicroStrategy was revealed at the start of September (which was fuel for this rally) I’m betting that a lot of the buying in Bitcoin is by people who do not believe in Bitcoin, they are just piggybacking on the belief of others.
What conviction do all these buyers have if Bitcoin does start to show weakness and more bearish views, from respected professionals like Ray Dalio, exert influence on investors who might feel they were guilty of some fomo and jumping into something they don’t fully understand?
Just thinking aloud here really, but I have seen some shift in sentiment and I’m wondering whether it will spread.
To not leave you feeling gloomy, regardless of what happens in the short-term I think the narrative and arguments for $100k Bitcoin in future are getting stronger than ever. If you need a real optimism boost, look-up Raoul Pal on YouTube, where you can find him talking about his thesis for $1 million Bitcoin!!
Thanks for your time.
