Bitcoin, expected to drop like a rock, tests $4,100 before pulling back


Bitcoin was on a tear for the past week, surprising all onlookers, as it blasted past $4,100, only to pull back suddenly to $3,785. This buying rally came after a week where analysts were sharing dire opinions of just how low BTC could go before finding a true bottom. Expectations were that the cryptocurrency leader would fall from its $3,500 level of support, return to December lows of $3,122, and then all bets were off.

Values between $1,250 and $1,850 had been cited, based on all manner of technical reasons, but the picture was not good. Alex Kruger, an economist that follows cryptocurrencies, has been a bit more encouraging. While he notes that the December low is behind us, investor interest still remains low due to minimal volume. Despite recent recoveries, he still sees another drop below $3,000. At the moment Bitcoin volumes are up, and there are over seven million users worldwide.

February has been filled with a few of these “on-again-off-again” spasms of quick run ups, followed by immediate downdrafts. There have, however, been no obvious triggers in the marketplace to explain these moves, leaving analysts to grapple with technical interpretations. As an “infant” asset class, cryptos do not yet yield creditable technical interpretations of investor sentiment and psychology, but these tools are all that we have. The current analysis suggests that recent positive moves have been a breakout from a converging triangle in order to resume the late Christmas rally in December.

In order for any kind of breakout to continue, there need to be fundamental forces at work, driving the “Buy” side of the equation. On the “light” side, usage has been increasing in developing countries around the world where Bitcoin is a better store of value than the local fiat currency. Chinese traders have also returned from New Year’s celebrations ready to jump back into the market. Wealthy investors are also known to have substantial buy orders ready to release whenever BTC hits the low $3,000s.

On the “heavy” side, there are a considerable number of positive developments on the institutional investor front, which could yield sizable demand pressure down the road. Fidelity Investments, the Bakkt exchange, the ErisX exchange, Nasdaq participation, and the looming potential of a Bitcoin ETF are just a few of the headline grabbers of late that will create a more hospitable investing environment for institutional investors over the next two quarters. It is said that the potential of these developments has led to a phase of accumulation when dips occurred.

There is also another “hard fork” in process, this time for the Ethereum platform. The last such event occurred back in early November, when Bitcoin Cash split. It was viewed as a negative for the system and helped to drive prices to lower support levels. For the Ethereum platform, the “Constantinople” fork, as it has been called, is in process. It is seen as a positive, a possible reason for the recent rise in valuations across the board, but today’s sell off would then be the old “buy-on-the-rumor, sell-on-the-news” trading strategy, a necessary round of profit taking, if you will.

At the end of the day, the fact that Bitcoin rose above $4,100 and took a peak at $4,200 is a positive takeaway. There will be more tests to come. A number of wealthy investors and Wall Street types have also stepped up the positive rhetoric in the press, as well, all good signs for better days ahead. Technicians claim there is one more dip to come before a real recovery can begin, but Spring is near, and Crypto Winter may soon dissipate.

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