Will Bitcoin pass its first BIG test?

Blind panic has hit the Bitcoin story. The cryptocurrency is certainly taking a tumble. But, as we have intimated in recent weeks, a correction was long overdue, and a shakedown could be just what is needed to get 2018 off to a great start.

If that sounds counterintuitive, it might be an idea to recap over just what has happened with Bitcoin over the past couple of months. The historical investors in Bitcoin – those who were familiar with the technology, the ethos, the whole concept – have been quietly investing for years. Recently, they have been joined by investors who know very little (if anything) about what underpins the technology. They have read the headlines about the astonishing gains this crypto has made, and have dived in – at the top of the market – expecting the price to zoom up no matter what …

In general, these new investors do not understand how volatile, and different, Bitcoin is, as a financial instrument. To be fair, even the “experts” have a hard enough time with the intricacies sometimes.

It is the new investors who have created the froth in the price, which is now being blown away. Longer-term investors – not those who just thought they’d buy a few hundred dollars worth, “and see what happens …” – will be fine.

For many – this is an incredible buying opportunity, and a chance to get into the market at a great price.

Let us explain our reasoning, by taking a look at the daily chart.

At 1) Bitcoin looked like it was going to hit the $20,000 level last week. For many reasons, not just the hacking and subsequent failure of a Korean exchange, the crypto started to fall. A panic set in amongst the smaller investors who fled with their losses. This spooked some of those who had been watching the market closely, for signs of a fall. This then became a self-fulfilling prophecy – and investors sold over the next few days, to send the price back down to the 21-day EMA, at 2).

So far this has held, as it did, at 4) back in mid-November too – although the force behind the fall was weaker here than it is with the latest drop.

2) is the first of the key major support levels to be tested in this latest tumble – the others being the 55-day SMA, at 4) and the 100-day EMA, at 5). We see no reason to panic – as long as the price does not close below the 21-day EMA. If it does, we would be looking at the 55-day SMA as the next support. Indeed, the institutional investors and other “serious” players will want to hold on to this level, at least – and would do all they could to make sure that it holds. They have way too much to lose.

The 14-day ADX, at 6) has made its mark by showing that this correction was going to happen – and it did this perfectly – giving a timely indication of what was about to happen. In addition, the positive DMI, at 7) is falling, whilst the negative DMI, at 8) is rising – so the bears are in control at the moment. These indicators should be watched closely over the next few days for early signs of any reversal of the downward trend.

The volume and momentum, shown as the pulse signal, which has fed the recent rise, since 9) has now flattened and is falling rapidly, as shown by the color change, at 10) and the sharp fall, to 11) which has resulted.

Bear in mind, Bitcoin is incredibly volatile as an instrument anyway – add in panic, and novice investors and that volatility is multiplied many times. Cryptocurrencies are largely untested in the situation we find ourselves – but sticking to the textbook guidelines – reading the charts objectively, and thinking through the options, should keep you safe.

Use due diligence before you commit to any trades in this market – and keep your wits about you.

Have a wonderful Christmas and a very happy, healthy, and prosperous New Year.

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