Whatever you want to call Bitcoin, a digital currency, a store of value, or a separate asset class of its own, it charts like an equity. It goes through periods of consolidation followed by rally periods. This price action is a function of investor interest and sentiment. The more interest in a stock, the more volume, and the better it charts. That’s why I disagree with those who say that volume analysis is dead.
I look at volume the same way mathematicians look at the “law of large numbers”. The greater the number of participants that are involved in the pricing of a stock, the better the quality of information that is revealed in the charts. Recent institutional interest in Bitcoin has increased overall volume and consequently the price patterns, in my opinion, chart with more structure and consequently more reliability. Specifically, price has traded around well-defined technical levels on the daily chart. Let’s take a look.
The daily chart shows Bitcoin moving higher this year. In the process it has gone through two periods of horizontal consolidation that have similar characteristics. The first played out in the first five weeks of the year. Bitcoin began the period by trading up to an early high in the first two weeks of January, then retraced that early move in the second half of the month. It found support at the 50 day moving average at the $30,000 level. Then it jumped back up to its old high in the $42,00 area which was prior resistance. As the rebound move off the low was underway the Relative strength Index crossed over the 21 day moving average of the index. It eventually eclipsed the 50 center line level. At the same time, the Chaikin Oscillator, a measure of price momentum, crossed above its 21 period moving average. A large white candle ultimately took Bitcoin through $42,000 resistance and signaled the start of a repeating process.
The second Bitcoin channel began like the first with an early rally up to its eventual channel high, this time situated at the $57,500 level. This second rally run was nearly identical in price range to the first rally range. It was a move of approximately $13,500. When the second target priced was reached, Bitcoin’s price fell back down to support, again, near its 50 day moving average. The bounce that followed saw bullish crossovers on the RSI and Chaikin Oscillator like the the crossovers on these indicators in the first rally. Bitcoin’s price moved back up to its previous high at the top of the channel around mid-March. This second process of rally that defines the range, a retracement, and then bounce back up to the old high, took exactly the same number of weeks as the first series. So, the price range was basically the same and the time for the process to play out was basically the same. This reflects similarity in both time and price.
Now Bitcoin is breaking above the second channel high. The question is will the process repeat a third time? My guess is probably not as precisely as the earlier patterns. But there is a good chance that the measured move off the second channel will be met after some backing-and-filling. That is a target price of about $70,400. The institutional interest and the current move over $60,000 has got to have converted many traders into HODLers and many skeptics into believers. Bitcoin has become a force to be reckoned with and however you define the force, it is powering price from the lower left of the chart to the upper right.