Bitcoin’s Next Move

The price of Bitcoin has made a classic technical breakout of the recent downtrend. The daily chart broke the trendline, retraced, has now broken the high of the initial breakout.

But, charts have their limits, so this is a good time to look at what is likely to drive the price in the coming weeks and months.

My own view for the long term is actually neutral. I think there are too many unknowns to have a strong view beyond six months ahead. But there are good reasons to be very bullish in the short term.

Let’s face it – in the run up to $5,000, people bought Bitcoin because the price was rising, and the price was rising because people were buying it. There were no fundamental drivers of this price action. I’ll address the fundamental price drivers in the next post.

Source: www.coindesk.com

The next move is likely to be driven by sentiment too.

In the greater scheme of the world economy, Bitcoin is still tiny, and the number of people who own, or have owned Bitcoin, is still a tiny fraction of potential buyers. As the price moved from $2,000 to $5,000 millions of people bought in, and millions more were getting ready to buy in. But then the price stopped rising and there was no longer any rush to get involved.

FOMO (Fear of Missing Out) was the driver of the last rally and will be the driver of the next rally - if there is one. If the price has a very strong move, or if it breaks back above $5,000, the FOMO factor should be massive.

I say should because there is always an alternative scenario. In this case, it is that the negative press around Bitcoin has discouraged enough of those potential new buyers to keep them on the sidelines again. If a strong move doesn’t attract massive new buying volume, we will know that is the case. So far, the buying has been on falling volume. If volume doesn’t pick up soon this scenario is very likely.

But, with the amount of attention cryptocurrencies have received in the past few months, one should assume there are millions, if not tens of millions of potential buyers, who will be sucked into the market if we see the price above $5,000. They missed the last rally, and they aren’t going to want to miss the next rally.

Hedge funds and VCs have also been taking a closer look at the market. They will be very aware that right now this is a momentum story. They have also had time to make capital available, and if or when they see the price rising, on rising volume, they will be buyers too.

The only risk to a rally in the short term would be action by regulators, specifically the SEC. If the Chinese government managed to trigger a 40% selloff, just imagine what the SEC could do. And I do expect them to act at some point. I just expect it to be after another significant move. They would rather the issue goes away on its own, and they are probably hoping that $5,000 is the all-time high.

On the other hand, approval of crypto ETFs like the COIN fund would be another bullish price driver. In fact, any sort of approval by regulators would be positive.

However, in the absence of any major developments, the price will be driven by sentiment, and sentiment will be driven by price.

If the volume doesn’t pick up soon, we will have some sort of double top in place, and we will need a fundamental driver to push the price through $5,000. That might take a long time.

But with the strong move, we have seen over the last ten days, volumes should return. And, given the amount of cash that must be lined up on the sidelines, the next rally could be just as rapid as the move from $2,000 to $5,000.