Cryptobubble Update — Where will this correction end up?

This is kind of a follow up post to the previous bubbe “prediction” post (https://medium.com/@dennyk/updated-cryptothoughts-bubblemania-95229aed7639)

I wanted to throw my hat in and give you an idea what I think happens next and where we end up.

As always, I need to preface this in that this is purely my personal opinion, not professional advice and it certainly is no recommendation to trade. You need to do your own research and take your own decisions. Any of the mentioned cryptoassets can go to zero and you can lose all the fiat you invested in it.

As I had mentioned in both of my previous posts I think a good way to get into any kind of asset that you think will go up long term is to invest 1/3 then, 1/3 later and 1/3 even later than that. If you have invested 1/3 at some point in the last few months, the next third should probably be put to work at some time in the near future in my opinion.

Interestingly, due to the amount of non-professional traders in Crypto and the lack of fundamental data for any asset in the space, technical analysis works better than it does for traditional assets. Therefore, I will tell you my thoughts on the main asset in the space (Bitcoin) from both a news perspective, as well as a chart perspective, as I assume most other assets will follow its lead. Again — this is solely my opinion.

Bitcoin

First the technicals. From a purely technical perspective, I would like to highlight four points:

(a) Bitcoin has today breached the neckline (red line above) of a shoulder-head-shoulder formation. This formation usually denotes a top and the specific one here has a target of 3400–3700.

(b) There is a point to be made that Bitcoin has actually breached the neckline of a much more symmertic S-H-S as well (around the current price by the dotted red line). If that is true, the target of that formation would be 2800–3200.

(c) Looking at Elliot Waves (not included above as it makes the chart almost unreadable) I believe we are likely in an A-B-C correction to the entire move up before. The minimum target correction for that would again be 3400–3700.

(d) Finally, the long term uptrend sits at 2900 and support zones are around 3500 and again 2900.

Technically speaking, an interim target of 3500 and a medium target of 2900 seem reasonable. Note that we are in a long term uptrend, so looking at a 6-month horizon, new highs are likely.

Regarding the news side, several “predictions” of the first post on the bubble have become true:

(a) China has outlawed ICOs and the SEC has given notice to some token-emmiting firms that they need to comply with securities regulation

(b) There are rumors that China will ban any fiat to crypto exchange trading in China / CNY

(c) There is an ongoing debate about a November hard fork (“2x”) to double block sizes. Most users oppose this split, but the advocates of the split have so far rejected to include replay protection in their chain. If this goes ahead without any changes it would be very damaging for Bitcoin.

I believe that the first factor here is a long term positive. It will enable the crypto space to become an accepted asset class and likely fuel the next leg up. I currently view (b) as largely irrelevant, while (c) is a major worry. I do not currently believe that the “2x” HF will go ahead, but the uncertainty will weigh on price. Same for (b) actually. You could say that without any formal confirmation of (b), but ongoing rumors we are seeing a “sell the rumors, buy the news” opportunity unfold.

In summary, I believe this correction is healthy and very important. Bitcoin had become a far too crowded trade and when celebrities like Paris Hilton encourage you to invest in an ICO, the bubble is in full display (that tweet, funnily, marked the top). As I said before, I do not give any recommendations as to trading and there is a good chance what I write above is wrong. However, it does give you an idea as to what I think is happening. My long term views on Bitcoin and cryptoassets in general has not changed.