Is It Time For Bitcoin To Break Out, Or Will The Double Top Lead To Another Big Plunge?

Once again, Bitcoin and other cryptocurrencies are all over the news. We have seen such periods for these digital currencies in the past, many of which ended in financial pain for the bulls. Will that be repeated now, or is something more bullish potentially ahead?

We have been correctly skeptical about this sector over the past three years. The charts show that was a good position. But the markets are dynamic, and of course, facts change.

Bullish or not, Bitcoin’s volatility is very high. It has doubled and halved in price over periods lasting just a few weeks. Below is a weekly chart of the Bitcoin-U.S. dollar exchange rate over the past 4 years, highlighting the extreme price swings:

Cryptocurrencies, in general, plunged 75% to 100% from their euphoric highs in December 2017 to their lows just one year later. Bitcoin retreated from nearly $20,000 to below $3,200, depending on what market price is used.  At that 2017 high, analysts in the financial media were hyping up these digital coins every day, forecasting rises to $50,000, $100,000, and even higher. Predictably, that euphoria marked the top.

Bitcoin then rallied sharply into the 2019 high, more than doubling in the span of a few months. But just when the hype hit its peak once again in June 2019, prices were slashed by 72% into the low of March 2020.

Since that point, Bitcoin has recovered its huge loss and even rallied to slightly above the 2017 high.

Old highs are usually strong resistance. The further back in time, the stronger the resistance. The Bitcoin chart is now slightly above its 2017 high. If it reverses downward now, it would predict a sharp correction.

Once again, the wild forecasts of even $500,000 per Bitcoin are back in the media. To us, that is at least a near-term warning signal.

The Long-Term:  At Dohmen Capital Research, we continuously reanalyze the various scenarios of different asset classes and market moves. Thus, we go back to the very long-term monthly chart, shown below. It is also a “log” chart, where the vertical price scale is logarithmic.

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At Dohmen Capital Research, the cryptocurrency markets are just one of the areas we cover in our analysis. In our award-winning Wellington Letter, we offer our more detailed contrarian insights on ...

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