Bitcoin’s roller coaster is headed higher again — the cryptocurrency is once again on an upward slide, hitting the $7,000 mark this week.
While recent history suggests that bitcoin, the world’s largest digital currency by market cap, is unlikely to hold that level for long, the ups and downs of cryptocurrencies provide investors with valuable technical data to use in their trading strategies, says Jack Tatar, managing partner at Doyle Capital Management, a Pennington, New Jersey-based venture capital fund that invests in cryptocurrency companies.
Bitcoin has had a “tough trading environment,” but it will bounce back and reach another level of support, he says.
“We’re starting to see more people involved and more data coming in,” says Tatar, who is bullish on the future of the virtual currency. “There’s more efficiency in the market and there’s starting to be more data to follow on a technical basis.”
Bitcoin, which is lightly regulated, has put on a show for investors, hitting a high of $20,000 before plunging to $8,500 in mid-March and eventually hitting lows in the $6,000 range, wiping out billions of dollars in market capitalization amid extreme volatility, hacks and regulator orders. Big losses aren’t uncommon for bitcoin and other digital currencies.
Stock investors sometimes rely on the 200-day moving average
A long-term momentum indicator, and some crypto traders have said using the benchmark is also useful for bitcoin trading.
“Bitcoin’s [July] rally actually ended just below its 200-day moving average, which is around $7,300,” says Mati Greenspan, senior market analyst at eToro, a Tel Aviv-based social investment network. “Technical analysis plays a huge role in analyzing cryptocurrencies. Not only did the price fail to get a break to the upside, but you can see that both times it had been trying for several days, testing the barrier, before finally pulling back.”
The 200-day moving average also played a significant role in bitcoin’s 2017 rally, particularly early in the year when it provided support to the market, he says.
When bitcoin hits a new high, investors should not focus on short-term gains and continue to allocate to the coin in their portfolio, Greenspan says.
Strategies like dollar-cost averaging and buying the dips, which are commonly used by stock investors, have also been used by many cryptocurrency investors because they are beneficial, Greenspan says.
The price of bitcoin is often very volatile, moving hundreds of dollars in one direction or the other in a single day. Rapid rises and falls in bitcoin are not unusual, and rather than being afraid of them, investors should expect them.
The price of bitcoin has been driven largely by retail investors who “see the value in this new form of money,” Greenspan says. “As we speak, larger institutional players are starting to show interest and invest in this space.”
Bitcoin has been trading in a range since it hit $8,000 and then rebounded to $6,000, Tatar says.
“When it breaks below $6,000, that’s when people should really worry,” says Tatar, who believes investors should allocate 5% to 15% of their portfolio to crypto assets like bitcoin, Ethereum and other digital coins. “That’s when we have a problem.”
Bitcoin has the potential to hit the upper range and break out above $8,000, he says.
“At that point, we could see more of an uptrend to create $8,000 as a support level,” Tatar says. “If you get a breakout above a certain level of $8,000, there’s the potential for a new support level and $8,000 could be the old resistance.”
