The year kicked off with a sense of euphoria as bitcoin broke all time highs in China, hitting a top of 8888 on OKCoin. Once the price broke out above 8000 CNY, momentum accelerated and the markets shot up and wen’t parabolic.

In my last bitcoin report I had warned people about the potential crash:

“At this point if the markets continue to accelerate the price could end up going parabolic with rapid price gains. That said, a parabolic move to the upside can have a quick and violent correction to the downside. The faster the market shoots up the harder the price will fall.”

Since the parabolic blowout, the price swung violently to the downside, losing 33% of its value and coming right back down to the levels prior to the rally. Price action hit a double top on most USD exchanges.

Market sentiment is very low right now but the price is currently exaggerated to the downside. When there’s blood in the markets there’s an opportunity to make money as a trader. The important part is to manage emotions and look at the forest from the trees. Newcomers and media outlets want bitcoin when the price is over $1000 but fail to see the potential buying opportunity at a 33% discount

Bitcoin Market Analysis

If we measure the entire bull trend using fib retracements, we can see the the price dropped to the 38% level. There’s also levels of confluence as prior resistance turned into support. Also the larger trend line is still very much intact, which tells me that we may still be in a bull market. This exact same scenario has already happened on the two other major breakouts at the $300 and $500 level.

I’m currently long and waiting for the bounce play. My favourite time to buy bitcoin is after these massive dumps when everyone is panicked and market sentiment is at its lowest.

In my market analysis for November I had mentioned the following:

“In the event that this bull rally gathers momentum for another trend, then it’s possible we’ll see prices test resistance around $1000 USD. A test of $1000 may lead to a price correction down to the next level around $800, which could form a third ascending triangle before breaking the all time high. These consolidation patterns show that the longer bull trend is healthy, as the price establishes on each level up.”

If we are close to the bottom, then the markets will likely slowly retrace up above $900, perhaps even with a retest of $1000. Consolidation within the range of $750-$1000 will be bullish for the larger trend and could eventually lead to a real breakout later this year. On the flip side, if we break down below the ascending trend line around $650 then that could signal the end of the bull market and the beginning of a longer bear trend.