Bitcoin is going through the customary pullback in the price. The new threshold to watch for is –35.77% on the downside. This was the amount of loss that speculators and investors were willing to accept from the June 11, 2017 high of $3,018.55 to the July 16, 2017 low of $1,938.94 before a new bull run to the upside ensued. Most traditionalist say that a bear market starts at or near a decline of –20% or more. At which point, it takes some time before the “investment” gets back to the previous high (example: Nasdaq Composite took 15 years to get back to the 2000 high).
In this case, we’re not talking about a stodgy technology stock index, we’re talking about a potentially new currency mechanism which will likely supplant many existing currencies. Bitcoin is only one among many competing to be the final choice of a new money. However, in order to get that prize, Bitcoin will need to survive the high risk phase of speculative boom and bust.
Right now, we’re watching Bitcoin investors test their tolerance for pain as the price swoons from the high of $4,950.72, as report by Coindesk.com, to the current level of $3,390. As we said in our August 21, 2017 posting:
“…participants will accept even larger declines if the expectation is that it will exceed the prior peak. So far, Bitcoin participants accepted a –14.94% decline followed by a –35.76%. In each instance, these declines were followed by new highs in the price of Bitcoin. By our rationale, Bitcoin will now fall as much as –35% and possibly more as participants become inured to the pain of loss in anticipation of new highs.”
This is all you need to know, Bitcoin is setting the stage for dramatic fireworks. We’re sticking to our call that “parabolic moves are resolved through dramatic declines. We believe that the conservative downside target of $1,911.83 will be achieved.” This outrageous claim is not based in hope or fear, it derived for the previous accurate tracking of price declines well in advance of the fall. However, based on the new high at $4,950.72, below we have included updated Speed Resistance Lines for those that are following along with us.
What We Got Wrong
On June 15, 2017, we proposed that a prior decline of –14.94% had set expectations of what Bitcoin participants were willing to accept for downside risk. That logic was turned on its head when Bitcoin declined from the high of $3,018.55 and then fell as low as $1,938.94 or –35.76%.
The revision that we’re making is that as each decline grows, participants will accept even larger declines if the expectation is that it will exceed the prior peak. So far, Bitcoin participants accepted a –14.94% decline followed by a –35.76%. In each instance, these declines were followed by new highs in the price of Bitcoin. By our rationale, Bitcoin will now fall as much as –35% and possibly more as participants become inured to the pain of loss in anticipation of new highs.
Where We Got Lucky
We can’t confidently claim to be right about the prior calls that appear to be “correct.” However, we can point out the coincidences that occurred:
The decline from $3,018.55 to $1,938.94 was fairly close to the conservative downside target of $1,442.92.
The recent peak at $4,425.30 was close to the $4,328.74 we set on June 15, 2017.
Let’s do a quick review of the evidence so far.
July 2010 to November 2011 Bitcoin increases +36,900% and then declines –93.07% within a two year period.
November 2011 to July 2013 Bitcoin increases +9,771% and falls –70.93% in less than two years.
April 2013 to October 2014, Bitcoin increases +1,629% and falls –72.21% in less than two years.
Is A Crash Coming?
We can’t be certain that history will repeat. However, the evidence suggests that a decline of –70% to –90% is the norm. Let’s watch.
According to Coindesk.com, Bitcoin achieved a closing high of $3,018.55. This was +30% above our January 1, 2017 estimated upside target of $2,316.35, when Bitcoin was priced at $997.69. Now that Bitcoin has establish a new declining trend, we’ll provide our interpretation on the short-term moves in the price of Bitcoin and new upside/downside targets based on the $3,018.55 peak.