As Bitcoin (BTC-USD) holds over $ 40,000, investors focus on the volatility and try to guess the next big move. A former trader on the New York Stock Exchange demonstrates how technical analysis is ideally suited to analyze and predict price movements of cryptocurrencies.
With one recently Yahoo Finance Plus webinar, Capital2Markets President Keith Bliss, explained to attendees that Bitcoin and other cryptocurrencies are not suitable for traditional fundamental analysis because they do not have balance sheets and financial data that can be modeled. However, they display the same chart patterns as their stock cousins - meaning investors can use technical analysis to predict price movements.
“[W]with a Procter & Gamble (PG) or an Exxon Mobil (XOM) … you can see what the discounted cash flow be about future 12 months and then determine what a fair price for that stock is. Bitcoin doesn’t have that. It’s investor sentiment and catalysts outside of any kind of fundamental computation within the asset. So it’s kind of fun to map, “he said.
Bliss uses a variety of technical tools, but it starts with the simplicity of trend lines connecting price extremes over time. Markets can go up, down, or sideways, and trend lines help determine not only direction but turning points as well.
In the above chart, the red trend line runs parallel to the blue line and captures the January and February highs. Once these two touchpoints were known, the parallel blue line was pinned on the January low. After its high in February, the market fell, almost touching the blue line, which was a cheap entry point – as did the March and April lows. Investors can use these trends for entry and exit.
But the trends are eventually breaking, as was the case with Bitcoin in April when it finally broke the blue line. This was a warning that market participants are pulling back on their bull market and are no longer as interested in price increases as in the previous months.
“[Y]You can see that it broke the support pretty badly [in April] when it started pulling back on investor sentiment. Sometimes when this happens to other asset classes as well – when you have some consolidation at a certain price – and then the market is trying to decide what’s going on and you wait for that one catalyst – either to break it out or to pull it back below the support line, “said Bliss.
After initially falling in price to around $ 47,000 (purple line), Bitcoin rebounded to nearly $ 60,000 before subsiding and falling back to potential support at $ 47,000. When price reaches interest rates at which it has historically been inflected, it tends to react. Bitcoin made a small jump from these levels but succumbed to selling when it was breached. After that, it was a short trip for nearly $ 30,000.
Bliss breaks the narrative and investor psychology behind Bitcoin as it peaked, which was manifested in price action on the chart. “At first, Tesla decided they would no longer accept it as payment for their cars … People started Beat Elon Musk pretty radical on both Bitcoin and Dogecoin, “he said.
More recently, news that the FBI recovered most of the bitcoin Colonial Pipeline paid to ransomware hackers has cast doubts about the security of bitcoin and has led to further price drops, Bliss said.
“[P]People were concerned about Bitcoin’s security. You know, there are still questions about how the FBI figured this out? “Bliss said, adding,” The espionage business could probably answer that better than I can. “
Jared Blikre is a market-focused presenter and reporter at Yahoo Finance Live. follow him @SPYJared