Strange times rake up golden memories, but are we facing crypto’s dotcom moment?

DOMINIC FRISBY: "It will fall back in love. Don’t worry. It’s a fickle relationship. It’s like Richard Burton and Elizabeth Taylor"

Oof. What a brutal fortnight.

Bear markets are horrible things, as I think you must be sick of me saying.

I had identified, as you may remember, the $5,800 level as key support for Bitcoin. As long as $5,800 holds, we were okay. And for many months, even as the altcoins slid, Bitcoin held above that $5,800 – $6,000 level.

The danger, however, was that it was such an obvious area of support, there were likely to be a load of stops just below. If $5,800 did not hold, they would likely get triggered and we would get an avalanche of selling. I’m afraid that’s what happened.

$5,800 gave way on November 14th. Within a few days we were in the $4,000s and now here we are at $3,590 as I write. I make $3,480 the low. Roughly a 45% correction in a fortnight. Phew. It’s nasty stuff, unfolding pretty much as projected last week.

Pronounced gains and losses

Here is a five-year chart of Bitcoin, but it is a log chart. A linear chart would scale price – 1, 2, 3, 4, 5 – whereas a log chart scales according to percentage gain – so it goes 1,2, 4, 8, 16 and so on. Log charts tend to be more useful when you are considering the long-term, particularly for something as volatile as Bitcoin, where the percentage gains and losses are so pronounced.

On this log chart I have drawn some horizontal red lines off previous highs and lows – price points that have had influence in the past. As the bitcoin price comes down, these could prove to be areas of support.

Five years of Bitcoin

Five years of Bitcoin

As you can see the first area of support I see is around $3,200. It marked a significant high on the way up in summer 2017 and then a significant point of support. We must hope it holds.

If it doesn’t I see another line of support at $2,150. But it is not quite as strong as I expect that $3,200 area to be. By the way, I am using round numbers. The Bitcoin price seems to vary from exchange to exchange, so I tend to keep my brush strokes quite broad.

Let’s hope that $2-$3,000 area proves supportive, because, if it doesn’t, I think the likelihood is that we will go all the way back down to $1,300.

Obvious buy-point

I will be very surprised if that number gives way. This was the break-out level. This was the high in late 2013 that took another four years to re-take. It’s an obvious buy-point. Bitcoin should find tremendous support there.

I don’t know if you followed the great gold bull market between 2001 and 2011, when gold went from $250 to $1,920 an ounce. But on the way up, $1,050 proved a huge point of resistance. For years gold was trying to get through and couldn’t. When gold collapsed in 2013, $1,050 eventually proved support. For some reason, this Bitcoin bull market and collapse keeps reminding me of the bear market in gold. I rather suspect $1,300 will be to Bitcoin what $1,050 was to gold. Gold is currently trading at around $1,220 and is due a rally. Maybe the two will meet at $1,300 and then find parity.

It’s hard to know exactly what has caused this latest turmoil. The sell-off coincided with the fork of Bitcoin Cash – now Bitcoin Cash ABC and Bitcoin SV. If it sounds ridiculous that’s because it is. But the developers and the miners could not agree on where to take Bitcoin Cash and the result has been this fork. It’s also worth noting that the sell-off coincided with a broader sell-off in tech generally – Apple Alphabet (Google), Facebook and Netflix, for example, have all been having a rotten time of it. An investment world that was once in love with tech, now is not.

It will fall back in love. Don’t worry. It’s a fickle relationship. It’s like Richard Burton and Elizabeth Taylor.

Not quite there

Following the same logic, here is a five-year log chart of Ethereum with some lines of support. If you read my piece last week, you’ll remember I projected $100 for Ethereum (it was $135) and we have not got there.

Five years of Ethereum

Five years of Ethereum

What an extraordinary bull market that was! From 50c all the way to $1,300. Gosh some people made a lot of money out of that.

For now, at $104, we are sitting on a line of support now. The bulls will hope it holds because I don’t see another line of support until the $55 area.

After that the next line of support falls around $20 and then $7.

Driving forces

It seems extraordinary that I am making such low projections but you have to remember that this is a speculative new tech and the same forces that drove it from 50c to $1,300 will drive it back the other way.

The big question is just how bad is the bear market going to get. There is no way of knowing that, of course.

The question I am asking myself is – is this crypto’s dotcom moment? Is this the epic bear market that weeded out the Amazons, the Apples and the Googles from the Boo.coms. Are we in 2002? Or is there still one more epic bull market to come? Are we, perhaps, in 1996?

It’s something I have been in two minds about for some time. On current evidence this is looking more like 2002.

But Bitcoin has been here at least three times before. These bear markets are all part of it.

 

Dominic Frisby is author of the first (and best, obviously) book on Bitcoin from a recognised publisher, Bitcoin: the Future of Money?, available from all good bookshops, and a couple of rubbish ones too. Dominic is director of Cypherpunk Holdings (CSE:HODL), a company set up to invest in privacy-related technologies. Follow Dominic – @dominicfrisby

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