HAS bitcoin peaked?

After a meteoric rise in value since the start of the year, the cryptocurrency smashed through first the $US8000, $US9000, $US10,000 and then briefly the $US11,000 milestones within a fortnight.

But after hitting a new all-time high of $US11,377.33 on Wednesday, bitcoin plunged by nearly 20 per cent to bottom out at $US9290.30, according to research site CoinDesk. Thursday’s trade saw similarly wild swings, with a high of $US10,594.05 and a low of $US9250.40.

“Liquidity is at the heart of this move and perhaps this is the flush-out of a hugely extended position it needed to have,” IG Markets chief strategist Chris Weston said in a note on Thursday night.

“But again the lesson is if you are going to dance at the disco make sure you’re closest to the exit when the fire breaks out.”

Analysts now believe bitcoin could be headed back towards the mid- to high-$US7000 mark, with its price chart displaying what’s known as a “doji candlestick”.

Shane Chanel, equities and derivatives adviser at ASR Wealth, said bitcoin charts could be “providing omens”. “A doji indicator is when there [are] extremely large movements in price throughout the day, however the price closes at the price the asset opened at,” he said.

“It represents uncertainty and indecision from investors. When a double doji appears, technical gurus see this as a sign similar to that of a phoenix.

“This means that the price movement will either be significantly up or down over coming days. If the second doji closes below its opening price, it is intended to forecast that the price will likely correct.”

Mr Chanel described it as a “fight between the buyers and sellers, and the loser gets punished”. “A correction could bring bitcoin back to its previous level of support around US$7500,” he said. “That’s over a 20 per cent drop [from] its current price.”

He said the fall could partly be due to a number of investors transitioning from bitcoin to Bitcoin Cash, a “fork” of the main bitcoin line designed to have greater scalability.

“With a number of exchanges adding [Bitcoin Cash] to their platform, the natural outflow of capital from bitcoin to Bitcoin Cash could support the technical omens,” he said.

“Without everyday utility, pure speculation is driving prices. Traders are forced to use technical indicators to make buy and sell decisions.”

According to CoinDesk analyst Omkar Godbole, the “doors look open” for a drop to $US9000, and a close on Thursday US time below $US9202 could lead to a sell-off to $US7793, based on what’s known as a “Fibonacci retracement” of 61.8 per cent.

“A weak close today would confirm a bearish doji reversal on the daily chart,” he wrote. “It would indicate a long-term bullish-to-bearish trend change.”

As Investopedia explains, the key Fibonacci ratio of 61.8 per cent, referred to as the “golden ratio”, is found by dividing one number in a series by the number that follows it.

“For reasons that are unclear, these ratios seem to play an important role in the stock market, just as they do in nature, and can be used to determine critical points that cause an asset’s price to reverse,” the website writes.

As bitcoin’s 1000 per cent rise since the start of the year leads to growing warnings of a bubble, debate rages around the long-term prospects of the currency.

Earlier this week, Neil Wilson, a senior market analyst with London-based ETX Capital, described bitcoin’s rise as a “massive speculative bubble”.

“It’s hard to say precisely where we are in the curve, but the shape of the chart is parabolic and this sort of thing never, ever lasts,” he was reported in the Financial Times as saying.

“So far it’s following the playbook for a speculative bubble to the letter.

“The big question is whether we have reached the euphoric stage or are still in the boom phase. The other question is when to get out before panic sets in. Whilst this appears like a classic bubble, bitcoin could have a lot, lot further to run before it blows.”

Nobel Prize-winning economist Joseph Stiglitz has called for bitcoin to be outlawed as it “doesn’t serve any socially useful function”, while Goldman Sachs chief executive Lloyd Blankfein joined the naysayers, saying “something that moves 20 per cent [overnight] does not feel like a currency ... it is a vehicle to perpetrate fraud”.

It came as White House spokeswoman Sarah Huckabee Sanders confirmed Homeland Security was “keeping an eye on” bitcoin, and senior US Federal Reserve official Randal Quarles warned cryptocurrencies like bitcoin could pose a threat to financial stability.

The billion-dollar question is whether another reversal is the time to buy. The notoriously volatile currency has previously suffered swings of up to 30 per cent, but some of bitcoin’s proponents believe its long-term value could be on par with gold at around $US400,000.

frank.chung@news.com.au