The parabolic acceleration of Bitcoin prices
The price of Bitcoins has risen more than tenfold since it bottomed in February 2015. Such a parabolic move can be compared to the rise in Silver or Gold towards 1980 or 2011, or the NASDAQ in the run-up to its 2000 top during the dot.com bubble. And indeed, the promise of a finite non Fiat universal currency, which is easy to store and transfer are huge. Amid capital flight out of China and legalization in Japan, Bitcoins are finding increased legitimacy either as a practical store a value or as the possible next international transaction currency. We hereby attempt to monitor this parabolic rise, an exercise which is never easy.
BTC/USD, BitStamp (Weekly graph or the perspective over the next 2 to 4 quarters)
On both our oscillator series (lower and upper rectangles), an intermediate top is awaited towards mid year. Our past experience with such parabolic moves is that the timing of such moves is “broadly” accurate, which would mean that give and take a couple of months, a correction down should materialize between now and the Summer. From a Risk/Reward perspective, we have now reached our ‘I2’ Impulsive 2 targets up, or most extended measure of prices targets, between 2’470 and 2’860 (right-hand scale). In the meantime, the ‘C’ Corrective downside risk we can calculate is between 0.5 to 0.8 times our Delta or circa U$ 490 to 780, which would point to a 20% to 35% correction to the downside and would probably bring Bitcoins back below 2’000 in first instance. This is in line with the three previous correction periods seen over the last 12 months. Hence, a top is approaching and the Risk/Reward is now at best neutral.
BTC/USD, BitStamp (Daily graph or the perspective over the next 2 to 3 months)
The oscillator sequences we feature on both our oscillator series (lower and upper rectangles) show quite mature trends, which should top out between now and at the latest towards the Summer. Our automatic messaging is indeed already calling for a “High Risk” situation while our ‘I2’ Impulsive targets up have been reached (right-hand scale), i.e. this uptrend is already very extended. Finally the corrective potential to the downside (‘C’ down towards 2’100 – 1’870) now outweighs the potential left to the upside, again a sign of negative Risk/Reward.
Gold back in August 2011 (Daily chart)
Yet, as mentioned above, monitoring such parabolic moves is often tricky. Considering a similar situation from the past may often prove quite useful. The graph above shows Gold in the run-up to it peak in August 2011. The oscillator sequences are not dissimilar (on the medium term especially; upper rectangle) and the Risk/Reward is also stretched. Yet, the similarities between the price actions are even more compelling, with what looks like an ABC 4th Wave before a final 12345 5th (when expressed in Elliott Wave terms). Will history repeat itself, or is it rather that this time is different.
BTC/USD, BitStamp (Hourly graph or the perspective over the next 2 to 3 weeks)
Shorter term, it is impressive to consider the price progression of Bitcoins over the last 6 weeks (PLUS more than US$ 1'500 or a 150% performance). The sequence on our medium term oscillators (upper rectangle) could justify one last push higher into next week, possibly towards our ‘I2’ Impulsive 2 price targets up between 2’830 and 3’100 (right-hand scale). ‘I2’ targets are the most extreme levels of upside targets we calculate. Reaching them, or even nearing them, implies that a move is already very extended. Indeed, the sequence on our long term oscillators seems to have already topped out and started to correct down (lower rectangle). Hence, there is a possibility of one last push early next week, yet our favored scenario is that Bitcoins have probably topped out for now and are starting to correct.
Concluding Remarks:
The acceleration up in recent months has been impressive, and speculation is intense, while a large Bitcoin/Yen carry trade position has probably rapidly been built up. Considering the top made last week, we believe that it may mark the beginning of a strong intermediate correction. More generally, at this stage and current levels, we believe that the Risk/Reward on Bitcoin prices has very much deteriorated for now. [this statement was 'coined' on June 2nd AM CET]
Jean-Francois Owczarczak CFTe – SAMT Assistant Vice President – Geneva Chapter – jfo@samt-org.ch
Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.