Bitcoins rally may be over 

Bitcoins rally may be over 

Context

Bitcoin, the popular digital currency whose meteoric rise in price last year surprised many of its critics, has lost almost half its market value in just the last month. The price of bitcoin dropped from its lifetime high of over $19,300 in mid-December to below $9,300 on Wednesday and has since been trading in a volatile manner around the $10,000 mark

Reasons to get worried

Struggled to maintain the uptrend

The digital currency, since it hit its peak price last month, has struggled to maintain its uptrend

Each time it has tried to rally upwards, the price has failed to go past its previous high and subsequent corrections have been severe enough to push the price below its previous low.

Indicative of downtrend

Such price behaviour, of making lower highs and lower lows, is typical of a downtrend in the price of any security

Below its bullish trend line

Further, at its current trading price, bitcoin has broken well below its bullish trend line in short-term charts and looks set to do the same in longer-term charts

Bearish behavior

Bitcoin’s bearish price behaviour in the last one month is in direct contrast to its monster rally last year when its price showed a clear uptrend marked by higher highs and higher lows

Meaning: That is, after reaching a new high, the ensuing correction was not severe enough to push the price below its previous low.

Time for prudence (cautiousness)?

In hindsight, if you were a speculator simply looking to make a quick buck without any care about fundamentals, a good time to buy bitcoin was when its price action showed a clear uptrend in price, which was over most of last year

No surprise for its sceptics

Negligible acceptance in digital world

For one, the digital currency, which is supposed to derive its value from its use as a medium of exchange, has had negligible acceptance in the real world of commerce

Government doesn’t want competing currencies: Second, it has always seemed foolish to think that governments, which fancy their monopoly power over the issuance of currency, would be ready to allow private currencies to compete against national currencies

Conclusion

Bitcoin’s price action over the last one month should offer immense solace to the fundamental investor who will be glad to see its price gravitating towards its true value.