Bitcoin Gives Up $6000 Support Level: Price Downtrend Continues

After weeks of boring, mostly sideways price action, the new investment thing called bitcoin finally conceded at least short-term defeat and closed below the $6000 support level in a dramatic one-day 10% sell-off last week. Whoever had been buying it up at that level finally decided not to continue with the purchases and the sellers took over in decisive fashion.

That kind of a drop, suddenly and with great volume, is typically more representative of a commodity or maybe a penny stock than a currency — which called to mind this analysis “Bitcoin Is An Asset Not A Currency” from Forbes contributor Jeffrey Dorman.

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If you’re just coming in late or you’ve been on a year-long retreat with no media, bitcoin is the cryptocurrency that rocketed from next to nothing to quite a bit in a very short period of time. And whose owners are now experiencing the investing phenomenon known on trading desks and in business schools as “price discovery.”

I want to begin with a look at the monthly chart just to show how far this currency — or maybe it’s an asset — has come and how much it’s retraced since the top:

The logarithmic chart shows a spectacular move from about 250 in 2015 to that peak of around 19,000 in late 2017. Bitcoin now goes for 5554, so if you made your first purchase at the beginning of this year because of all the excitement, you’re down a huge percentage right now. That moving average convergence/divergence indicator (MACD), below the price chart, remains on the sell signal that appeared during the summer and which seems to have confirmed the downtrend.

You can see that last week’s sudden descent erased the level of support at 6000 that had been in place since June. The rallies since then had been shallower and shallower and that may have been the reason that buyers at the previous support finally gave up. Note the uptrend line in place that connects the 2015 lows with the 2016 and 2017 low — are we headed for a test of that line before buyers begin showing up again?

And, for the close-up view, here’s the daily chart:

It’s the classic “breaking out of the triangle” pattern which confirms the trend — in this case, the down trend. Price is unable to rise much above the Ichimoku cloud for months on end, not good if you’ve been bullish. Old school techical analysis practitioners will tell you that in such a pattern, what was support is now likely to become resistance. In other words, getting bitcoin back above 6000 may take some work.

I wonder what economist and NYU Stern School of Business Professor Nouriel Roubini thinks about the big move in cryptocurrencies last week — oh, here he is referencing it on Twitter:

“RICO racketeering laws used against the Mafia – rather than securities laws against financial criminals – should start to be used to chop the heads off of this Criminal Mafia Crypto Enterprise. The level of toxic criminality in this crypto enterprises puts at shame the Sopranos…”

No need to sugarcoat it, Professor.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.