Below Kathleen Brooks, Research Director at City Index, provides commentary on the latest bitcoin affairs.
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:
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 (see chart 1), 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.
Source: City Index and Bloomberg