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Bitcoin hits seriously overbought territory, but the ride may not be over

The previous high of $20 000 is now in sight.
Image: Chris Ratcliffe, Bloomberg

Update: Crypto boom shaken as bitcoin plunges along with other coins

Technical analysts have been pointing out all year that bitcoin is in overbought territory, but that hasn’t stopped its incredible ride since the beginning of 2020.

It’s fun looking back at some of the forecasts made at the beginning of the year, and how desperately wrong they have been, but allowance must be made for the hazards of forecasting something as volatile as bitcoin.

Remember that bitcoin started 2020 at $7 179, and this week traded at $18 380 – a gain of 156%.

In February, when it broke $10 000, the overbought signals started flashing on screens everywhere, then again in September when it punched through $12 300.

Back in July, the options market gave bitcoin a 7% probability of hitting its all-time high of $20 000 by the end of 2020. Now it seems like a virtual certainty.

Bearish signals

Earlier this month, crypto intelligence firm Santiment pointed out that signals of a sell-off event are appearing. One of these signals is the number of daily active addresses (DAA) versus price divergence. DAA is the number of unique crypto addresses interacting with (sending or receiving) a particular coin on a daily basis. These are active users rather than holders, and there is a strong correlation between the number of DAAs and bitcoin’s price action.

A sharp divergence has emerged between the number of active bitcoin addresses interacting with the network, and bitcoin’s price – which is a bearish signal.

Another interesting indicator is social sentiment, which is positive versus negative mentions of bitcoin on social media. Mentions of bitcoin have been heavily weighted to positive in recent months, which is often a signal of a trend reversal. This is not to say bitcoin will drop like a stone, though some correction should be expected as it reaches its previous all-time high of $20 000.

Also notable is the relative strength index (RSI) shown in the graph below, which is now seriously overbought. RSI is a momentum oscillator that measures the speed and change of price movements, and oscillates between zero and 100. The RSI is considered overbought when above 70 and oversold when below 30.

But bear in mind that bitcoin hit seriously overbought territory on the RSI signal on no less than three occasions in 2017, the first time when it hit $5 000. It punched through that level with ease and only corrected on the third RSI overbought level at $20 000. If you sold on the first signal, you would have missed the elevator ride to $20 000.

In a newsletter to clients, Stansberry Research advises treating bitcoin like any other tradeable asset and avoid the hype, being careful to allocate no more than 5% of your investment assets to crypto.

It says one simple strategy for those gripped by the trader’s worst enemy – fear of missing out, or FOMO – is to take some profits when cryptos as a basket (such as that offered by Revix and EC10) rise 10% or more, and to buy when they drop 10% or more. This has proven more profitable than a buy-and-hold strategy.

Another workable strategy is rand cost averaging, which is a way to accumulate bitcoin over time by making regular purchases, either weekly or monthly. Since January 2018, this strategy would have yielded an overall return of more than 50%, notwithstanding the 84% drop in price in December 2017 and November 2018.

Then there are those who see bitcoin at seriously higher levels over the next year, so a buy-and-hold strategy might suit them better.

As Moneyweb previously reported, Citibank head technical analyst Tom Fitzpatrick notes some unmistakable similarities between the 1970 gold market and bitcoin. On this basis, he sees bitcoin at $318 000 by the end of 2021.

This rise will be peppered with “unthinkable rallies followed by painful corrections,” he adds.

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The ride wont be over.

Bitcoin will always have a ride.

It’s that volatile. Up and down like a rollercoaster.

Bitcoin is like a gossip story, it’s value goes up as the gossip spreads until everyone that’s interested has heard it. Then because everyone that is interested has heard it, it loses value and people move on to the new hot thing until it does the rounds again.

I would also like to point all the Bitcoin fans to some wisdom from Shark Tank (the show in the US). When a potential investor brings them a product they always ask the same questions when deciding whether a product is worthy of their investment, is the technology patented? (with reference to Bitcoin, I believe not), and can the technology be replicated? (how many digital currencies do we have now?). If the underlying technology is what gives Bitcoin value which is not patented and can be replicated, where does the value for Bitcoin come from?

Let me know where I can find this bitcoin tech replication running at 137,950,000,000,000 mega-hashes per second.

Bitcoin is Gold 2.0,
Notice the trust deficit that the people have with world leaders, it is reflected in the price of Bitcoin.

People will want to keep their money private as long as the world leader keep reducing the value of FIAT.

Bitcoin will retreat to $12,000.00 but then building up to $30,000.00 next year as the tensions escalate in the South China Sea.

Long term fair value for Bitcoin is around $100,000.00 by 2030.
Long term value of the Zar … given the last 25 year rule by the anc is probably around R1.5Mil per BTC

BTC the world’s Trust Vault

Bitcoin is attracting the right attention in the globe. I like to believe that there are millions of people that will start buying and using it for various reasons. In not a distant future you will buy bread, milk, air tickets and whatever you use your Visa or Mastercard for. Your bitcoin will be linked to your cards. The world is ready for a transition.

The tech is already there, ask yourself, why aren’t people using it for that?

People are but not Bitcoin because that is our gold.

We carry Alt coins on our cards to pay monthly expenses.

Hell, we have even tokenised our physical gold and can also use it for purchases with our crypto cards.

@myricals which cards are you using? Im looking for a decent debit card but the SA offerings are poor/high fees and high spreads.

@jblack Debit cards are going to be expensive for crypto as the technology is new and in limited use; fees & spread will gradually come down as adoption goes mainstream.

We currently use Xapo & waiting on Binance Card but have a number of cards in the pipeline like Plutus & CRO Visa Card.

Ultimately though, we will only use the card from the current project we are heavily involved in that is essentially a micro-computer the size of a credit card with the most advanced security & encryption protocols being developed in the crypto space.

Cannot reveal too much here, but you can always use your Google skills to find us should you wish to learn more.

Tsk tsk tsk. All the gold investors who aped in to the shiny pet rock instead of BTC because they want to be right instead of profitable. Dump gold, buy BTC. Something only has value because someone wants to buy it. Nobody cares what you think, what makes you special?? The kids want crypto, you buy and make bank.

>> Nobody cares what you think, what makes you special??

Haha. So gold investors are arrogant for thinking themselves right, whereas crypto investors are geniuses for thinking the same thing.

A more reasonable statement would be that since the Vietnam war gold has been systematically suppressed by the principle actors in the international financial system, and that recently those principle actors have signalled that they see some kind of long term role for digital currencies – and so holding gold is not likely to yield the kind of returns many holders expect, and that digital tokens and currencies will increasing be a thing in the formal financial world.

Whether you will actually make money holding a specific non-central-bank-backed digital token (Bitcoin, Ethereum, whatever-coin) is, as always, a speculation – and should be regarded as such, and not some sure-thing for the enlightened.

The rally is, in part, due to institutional accumulation; $16.3bn by listed funds so far this year and PayPal has only started to enable it to meet its crypto supply needs; No sign of retail market yet.

The supply side is under severe pressure as funds are acquiring all new Bitcoin mined daily.

Bitcoin is also leaving exchanges in droves; indicating that investors are holding for long term gains.

We expect around a 30% retraction from ATH before it continues upward, but this is normal in the crypto space.

I have only the following to say on the whole topic of Crypto:

1: If you can ride the price ways up and down, great, and go for it.

2: Those in power of the money system around the world, will never let go of that power and they will never let others have. If they wanted to, they will shut this down and/or prevent it from becoming truly mainstream, because they have the power to do that.

3: At the moment Bitcoin is nothing more than a speculative thing and the governments know that, and it clearly doesn’t serve its purpose as a medium of exchange because it is way too volatile. So I don’t think those that control money in the world is currently worried about this.

If fiat currency ever collapses … Bitcoin will not be the new thing. It will be something similar, perhaps, but controlled by governments. Its a wonderful, wonderful dream and piece of technology. But its long-term value, is a round zero.

End of comments.

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