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What You Can Learn From the Latest Bitcoin Panic

Thảo luận trong 'Education' bắt đầu bởi forex trading, 17/9/17.

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    Tham gia ngày:
    18/7/17
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    Crypto investors recently learned an important lesson about markets: They go down faster than they go up. After Chinese regulators began cracking down on exchange trading of cryptocurrencies, the price of Bitcoin plunged 36 percent from $4,674 to $2,979, marking its worst weekly loss since January 2015.

    Other major cryptocurrencies staged similar reversals of fortune. Ethereum, the second-largest cryptocurrency by market cap, dropped 48 percent from $396.88 on Sept. 1 to a recent low of $203.46. Litecoin, considered “silver” to Bitcoin’s “gold,” plunged 65 percent from a recent high of $93.71 to a low of $32.45. In the past 15 days, the total market cap of all cryptocurrency dropped from a peak of $178 billion to a low of $110 billion by Friday morning.

    The pace of selling intensified Friday into a full-blown panic as China announced an intent to end exchange trading by the end of September, while still permitting over-the-counter transactions. The country accounts for 23 percent of Bitcoin trading and is also home to two of the largest Bitcoin miners, supercomputers that power the Bitcoin network.

    Last week, China hinted that exchanges would eventually be closed, but the market had not anticipated the government to move this rapidly. This followed the previous week’s ban on initial coin offerings which precipitated this avalanche. To be fair, China isn’t totally dismissing the promise of blockchain technology, as the People’s Bank of China is piloting its own cryptocurrency platform to host digital Yuan.

    Bitcoin enthusiasts must be feeling a strong sense of deja vu, as this isn’t China’s first attempt to curtail crypto fever. In December 2013, Bitcoin fell 50 percent after Chinese officials prohibited banks and payment companies from dealing with the virtual currency. After the dust settled, that marked a buying opportunity as the leading cryptocurrency has rallied 600 percent since those reactionary lows. Will this time be any different?

    Getting Technical
    In volatile markets, technical analysis offers a framework for identifying ups and downs. Fibonacci retracements, based on the Fibonacci series of numbers, are an approach that notes a mathematical relationship between past and future price moves.

    Fibonacci Retracements levels are created by pairing a major peak and trough and then dividing the vertical distance by the Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent. The key Fibonacci ratio of 61.8 percent—also referred to as "the golden ratio"—is found by dividing one number in the series by the number that follows it. Selloffs that hit the 61.8 percent retracement level are appropriately dubbed “golden retracements" and can signify an imminent bounce.

    The following Bitcoin chart illustrates Fibonacci retracement levels encompassing the July 16 price trough of $1,813 and the Sept. 1 peak of $4,994:

    [​IMG]

    Source: Tradingview.com

    Bitcoin dropped to its 61.8 percent retracement level Friday morning before sharply bouncing higher.

    A similar pattern is developing in Ethereum, the second-largest cryptocurrency. Fibonacci retracements are drawn using the May 21 lows of $111 to its recent high of $389:

    [​IMG]

    Source: Tradingview.com

    Finally, Litecoin, the fifth-largest cryptocurrency fell through its 61.8 percent retracement price of $40.08 and bounced to $55.40:

    [​IMG]

    Source: Tradingview.com

    The Bottom Line
    Bitcoin investors recently learned that markets go down faster than they go up. The next lesson is that panics after a sharp selloff can produce incredible buying opportunities. After sharp pullbacks in leading cryptocurrencies to key Fibonacci retracement levels, the asset class looks poised for a rebound.

    For the latest on Bitcoin and altcoin trading, please visit our site.




    Read more: What You Can Learn From the Latest Bitcoin Panic | Investopedia http://www.investopedia.com/news/what-you-can-learn-latest-bitcoin-panic/#ixzz4srdXLncN
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