Bitcoin (BTCUSD) fever reached its zenith of $19800 exactly one year ago today. Today, despite all the hype and optimistic predictions that are usually evinced from those sitting comfortably on Long positions - some of which were targeting the $100,000 area - BTC is currently trading around $3600.
So what went wrong ? Well, firstly, up until this time last year BTC was not a liquid market by any definition. This makes any product extremely reactive to trades in volumes that cannot be easily covered. However this also marks the anniversary of the BTC contract on the Chicago Mercantile Exchange (CME). It had debuted on the CBOE around a week earlier, and there was an insatiable demand for the cryptocurrency. no-one wanted to be short. However, the shine came off the market pretty quickly, and in fact just 5 days later it had traded from its high to below $11,000. Since then it has followed a pattern of decline, unconvincing rally that fails to reach previous high, followed by another decline. The markets can be many things but they are rarely stupid. Over the last year amateur traders have been looking at BTC in relation to where it was and thinking “this looks like good value compared to where it was XX weeks ago”, rather than considering where it will be in the future. You can sometimes make money by buying dips in a declining market but only if you have the discipline to also sell the rallies. You’ll have far less stress in your life trading with the momentum than trying to fight it. It doesn’t matter who you are – the market always has bigger pockets than you, and if there is one lesson the markets teach everyone it’s humility.
As for the technical view, it is largely unchanged from our earlier assessments. There is no intrinsic value in BTC so its value is wholly dependent on faith. That faith has punished many people quite severely over the last 12 months, and there appears to be no pressing reason to buy here. That said, it will inevitably reach a level at which some will think it might be worth buying but this would be a wager, not an investment.