Bitcoin is back in the news. The virtual currency has nearly tripled over the past six months, but could there be further gains in store? To understand what could happen next, we need to look back at an earlier rally.
If you were following bitcoin in the second half of 2017, you might remember a rally that pushed the virtual currency higher by about 700% in less than six months. That rally is represented by the green dotted line.
In 2017, investors became obsessed with bitcoin, which formed a parabolic curve, shown in blue. A parabolic curve is the market’s way of telling us that a trading instrument has become detached from reality. Bitcoin started June of 2017 trading near $2300, but by mid-December it had reached $19,600.
Parabolic moves are inherently unsustainable, and this one was no exception. By February, bitcoin had lost two-thirds of its value, falling back to $6000.
Fast forward to 2020. Bitcoin has formed a massive ascending triangle pattern. In order to break out of this formation, bitcoin needs to climb above $13,000, represented by the red dotted line.
The bottom line: Based on the sheer size of this pattern, if bitcoin can close above that $13,000 level, there is no serious resistance until the $19,000 area. In other words, if bitcoin breaks above $13,000, it could challenge its all-time highs.
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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.