Bitcoin Has A Cloud Hanging Over It

Bitcoin and cryptocurrencies had one of its worst corrections in history (down roughly -70% from all-time highs) as regulatory concerns mounted.  But, earlier this month the chairmen of the SEC and CFTC testified in front of the Senate Banking Committee where they asked them to consider expanding federal oversight, but without a ban on the development of cryptocurrencies. 

The Bitcoin Real Time Index rallied +99% from its recent low until finding resistance at the descending trend line and just below the cloud. A short term break in the rally isn't that big a deal. After all, it doubled in price in just over two weeks.  Look for Friday and Monday lows at 9725 to be initial support for now. 

Some are trying to draw a correlation between the dive in Bitcoin and the recent plunge in equities.  Did exuberance in cryptocurrencies move into equities at the beginning of the year?  Probably.  Retail investors lost interest in Bitcoin this January after a rush to open trading accounts, wallets, etc. in the fourth quarter of 2017.  And, the retail crowd was integral for almost every sector in the S&P 500 climbing daily at the beginning of this year giving the stock market its best start in three decades. 

There are some similarities in the slope of the rallies and then the ensuing plunges.  Both fell to test their 200 day moving averages and then bounced.  And, both are rolling over a bit in the last couple days.  

Bitcoin is still not an institutionally traded product although there has been chatter of increasing interest from Wall Street. The United States has not been clear on its regulation of cryptocurrency, but promises something soon. The main focus from regulators is to make sure cryptocurrencies are not used for illicit activities and it's still like the Wild West.   

I think a pause here in Bitcoin should be viewed as a positive overall.  We don't need to see huge gains like we did last year (+2500%) for the space to become more investor friendly.  Regulators need to get together and investors need to become more educated.  This will bring down volatility and bring in long term investors. 

David Wienke is the editor of Keystone Charts. More than 30 years of experience providing technical analysis and execution services to institutional clients is now provided in a daily newsletter, The Daily Game Plan. Coverage includes equities, rates, currencies, and commodities. Dave is also an introducing broker with Capital Trading Group, LLLP (CTG); a Chicago based investment firm focusing on alternative investment opportunities for CTAs and individual investors. Charts are created using CQG, the best charting service there is.