Bitcoin: still steals volatility limelight

Bitcoin is recovering from one almighty correction last week where it dropped from a high of $7,882 to a low of $5,605 in just three days. That is a drop of nearly 30%, which is technically bear market territory. However, this is Bitcoin and due to this it doesn’t react the way other asset classes do. At the start of this week Bitcoin is up $1,000, and has retraced nearly 50% of last week’s decline.

Factors that drove last week’s decline in Bitcoin included:

  • The cancellation of the upcoming Bitcoin fork, Segwit2x. This may have weighed on the price as pre-fork buyers who were looking to benefit from another upsurge in price, as we saw with the fork that created Bitcoin cash back in August. This impact should be temporary.
  • The European Securities and Markets Authority issued a warning on the risks of initial coin offerings, saying that they were highly risky and very speculative. They are not the first authority to warn over ICOs, in fact China banned them, with little effect on the Bitcoin price, and thus we expect Europe’s warning on ICOs to be mostly brushed off by Bitcoin traders.
  • The technical signals showed bitcoin deep in overbought territory, thus there may have been some hesitation when Bitcoin approached the $8,000 mark, which may have led to a rush to the exits.

Looking at the factors that may have driven Bitcoin’s sell off, most appear short term, and indeed, the sharp bounce back on Monday suggests that traders are using any dip as a buying opportunity.

So, where could Bitcoin go next?

This is a tough one to answer as Bitcoin appears to be a runaway train overcoming any obstacle thrown in its path. From a technical perspective, there is nothing to stop Bitcoin hitting $10,000 per USD, as long as we close above $6,500 today. Usually when a price moves through a big psychological level it continues to move higher rather than pausing or reversing course, thus $10,000 could the start of life above 5-figures for Bitcoin bulls. Thus, any future sell offs, and we warn you that they can be severe, could be used as further buying opportunities.

Perhaps the biggest challenge for Bitcoin will come when volatility elsewhere starts to rise. If the Vix was to surge like it did back in late 2015/ early 2016, then traders may lose interest in Bitcoin and pile into other fast-moving asset prices. However, for pure speed and adrenalin, nothing beats bitcoin’s price movements right now. It’s great if you can pick up on the dip and ride the wave higher, but it is not for the faint-hearted.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.