The Bitcoin Conundrum – What Should You Do?

The Winter Olympic games are coming up in Korea in a couple of weeks. Nothing separates the “amateurs” from the “professionals” like the Olympics. The gaps in times and distances, between the first and last placed competitors, is obvious for all to see on the scoreboards.

The same is true of investment – particularly when it comes to cryptocurrencies – and Bitcoin in particular. The differences between the winners and the losers are mostly down to knowledge and planning.

Bitcoin has appealed to amateur investors because of the staggering gains made recently. For some, who got in early, these gains are in the thousands of percent. But, for most of these amateurs, the playing field has now become seriously dangerous – if most of the financial press are to be believed – “financial Armageddon” has arrived.

More seasoned investors – especially those used to dealing with technical analysis – will be a little more relaxed about what is happening at the moment. Like the professional Olympians – if you have prepared properly, and trained – you should be fine …

The chart above shows the weekly progress of Bitcoin since July of last year.

Before we look at it in greater detail, we need to explain that the indicators at 1), 2), and 3) are “exponential moving averages.” These are well-known, and common, indicators in technical analysis – and are a powerful tool in determining both support and resistance levels. They are readily available on most charting software and are easy to follow. We use them all the time.

Moving averages can be charted for any period of time – from days, through weeks, and even months – the averages that we find most useful are the 21-day, 55-day, and 100-day exponential moving averages (EMA for short). In addition, we sometimes use the 8-day, and 200-day EMAs, for a more short term, and longer term, analysis.

Going back to the weekly chart – it can be seen that using the 21-day EMA (blue line) as our indicator, at 4) the price has been trying to break this level for several weeks but has hit resistance. The sellers are in control of Bitcoin, and it is quite possible Bitcoin will close below the $10,000 level, at 5) and may even breach the 55-day EMA, and fall to the level of the 100-day EMA, at 3) and 6).

This 100-day EMA is a strong level of support – the major investors of Bitcoin will fight tooth and nail to preserve this – which is why this is our “worst case scenario” for Bitcoin. Any retrace to this level would be a huge buying opportunity.

There is a previous example of how the EMA levels act as support, at 7) on the chart. Here, in September, Bitcoin fell and tested the 21-day EMA – but failed to close below it – before recovering in October.

In the third window of our chart, at 8) it can be seen that our momentum indicator spiked at this point after a steady climb. What would normally happen here is a correction into negative territory, at 9) before the indicator recovers and the trend reverses back into positive territory, at 10).

At the same time the directional indicator in the fourth window, at 11) shows a mirror reaction which will probably follow a similar fall and recovery.

Going back to the Winter Olympics – it may be time to start looking at Bitcoin in the same way the professionals do – finding the “worse case scenario” and planning around it. Reading the cryptocurrency news objectively, and interpreting what can be seen – as fact, on a chart – is more likely to make you money, than blind panic, knee-jerk reactions to situations which can be (to an extent) predicted, and acted on, in advance of them happening. We are still very positive about Bitcoin – but remember the volatility – and be defensive in your approach.

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.