A few weeks ago I made an attempt using conventional technical analysis to predict the price of Bitcoin at the end of December. In the article, I predicted that Bitcoin would reach $14,000 by the end of December, possibly surpass it, then retract to lower levels and reach $14,000 after a bullish run. It seems that so far the majority of the price movements have followed my analysis, but some recent developments have made me rethink my overall position in regards to Bitcoin as a whole.
Firstly, not all recent price movements have followed past patterns. That is actually a bigger deal than most people think. Cryptocurrencies overall have a high price correlation. Generally (with some exceptions) when Bitcoin goes up, the majority of the top cryptocurrencies also go into parabolic bull runs along with it. That has not been the case lately. Ripple, Ethereum, Litecoin, Bitcoin Cash are some cases that broke that pattern more often than they usually do.
Second, it is very logical that when gains are made, people will cash out. Even I found myself selling the majority of my holdings during the last rally in early December when Bitcoin hit $19,000. A move that I wouldn’t normally make, since I believe that long term holding of assets offer better and more balanced returns, while it also reduces risk of making a wrong position entry due to trading noise.
Lastly, one of my biggest influences in the cryptocurrencies trading space, Michael Novogratz, has decided to put his plans for creating a cryptocurrency fund on hold. He said in a recent interview that he believes Bitcoin has the potential to go as low as $8,000 before it bounces back. He also said that market conditions are not ideal for the creation of a managed fund at the moment. Many people criticised that comment, but it is important to note that Michael Novogratz has been a very strong crypto supporter for quite some time and he is a strong believer that in the long term cryptos can be worth much more than they are today.
Putting all this together, Bitcoin could be overvalued. It is still a technology supported by blockchain, which is developing and has not yet reached its full potential. That means a 60-70% (or more) price correction is possible in the future, and that’s ok.
Many have compared the cryptocurrency bubble with the dot com bubble nearly two decades ago and they are not entirely wrong. There are a lot of similarities between the two. For example, in the early 2000's any trash level company would IPO, whereas today cryptocurrencies ICO with no actual fundamentals supporting them. It is very important to remember one fact; when the dot com bubble inevitably burst many of those trash level company disappeared, but the good tech companies such as Amazon (NASDAQ:AMZN) remained. Fast forward two decades and Amazon is one of the largest companies in the world. It is therefore quite possible that a bubble burst would reduce speculation, would send bad currencies to where they deserve to be (the trash can) and would give the opportunity for serious investors to finally come in and invest in only technology changing and innovative ICOs, resulting in a maturing of the cryptocurrency market.