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?
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.
This is not the first time the price of Bitcoin has tanked. …read more
Read more here: What You Can Learn From the Latest Bitcoin Panic