Staring Into the Crystal Ball of Bitcoin Chart-Watching


I’ve never been a big fan of chart watching, and I read technical analysis reports with the same kind of gimlet eye as I read horoscopes. Both chart readers and horoscopes speak to something deep in the human psyche. We want to know what’s going to happen, if things ae going to get better or worse. We want to believe that there’s an order to things that will make predicting what will happen possible, even if it takes arcane mystic powers to do so.

For the most part, though, I try to keep away from any type of fortunetelling. I live in Japan, though, and one of the New Year traditions here is to go to a shrine and get your fortune for the upcoming year. This slip of paper will tell you the outlook for everything from health, to job prospects, to love, to lost property. Each year when I open this fortune, if it’s positive, I’m happy enough to believe it even though in my heart-of-hearts I know it’s just a random slip of paper and that the only luck I can really count on is the luck I create for myself. If it’s bad, then I discount it as being not real. But there is always a niggling little something at the back of my mind that makes me think that just being told that bad things may happen may influence me enough to make it a self-fulfilling prophecy.

What I notice when I read the market predictions from technical analysts is that they read very much like those New Year’s fortunes. There is a lot of talk about support and resistance lines, different kinds of peak patterns, and Fibonacci retracement lines. These are then followed by a predictions that may say the market will go up, but possibly that it will go down, that we need to wait for confirmation on which way the market will turn, or some other prediction that just verges on seeming to say something. That is to say, the prediction is always given in such a way that it looks like they’re saying something is going to happen, but hedged enough so that they’re right no matter what happens.

That isn’t to say that there’s no value to looking at charts. As far as my untrained eye can tell, the real value of chart is really in how it tracks the mass psychology of the market. All the market is is people: day traders, HODLers, institutional players, and all the rest. All of these players trade for more-or-less understandable reasons. Researching the market, finding out who these players are, why they trade, what the pressures on them are, and, especially, what they fear can give those with a skilled and practiced hand just enough insight to be able to say the market will break up or down with a better-than-luck chance of success.

Watching charts even without that in-depth knowledge is a fascinating exercise in psychology. A large sell order is put in, and over a 15 minute period pounds the price down, eating up all the buy orders available. With the sell orders exhausted and the price down, a vacuum has been created and buyers come back in to drive the price up temporarily. They buyers push and pull the market back up for 20 or 30 minutes, and then another large sell order is unleashed, quashing the price back down.

One of the frustrations I have with technical analysts is that their predictions may actually be best on the micro-scale of the high frequency trader where moment-to-moment responses to what’s happening in the market can be predicted, but no so well in the intermediate scale. In the intermediate scale of a day or a week, the pattern can always be upset by an institutional player stepping in to unload a hoard of coins or a company buying up coins to use as reserves. So, on the scale where I feel I need them most, the analysts have little more power than I do to predict the market moves.

With the benefit of hindsight it’s possible to say what’s has been happening to the price of Bitcoin over the last year. What we have been seeing with the price over the last year is need for large holders and institutional players to unload coins at a faster rate than adoption has been able to absorb them. The depressed prices have aggravated this by slowing adoption further � we always do better when the price is on the rise. And then the pattern is exacerbated again as traders play into the pattern by shorting Bitcoin. The result is a slow bleed in the price.

It’s important not to confuse the price of Bitcoin with its value, though. On the macro scale, the value of Bitcoin is as strong as ever, and this is attested to by the continued strong VC interest in Bitcoin, continued work on building out the infrastructure and 2.0 functionality of Bitcoin, and the continued large merchant adoption. Bitcoin has its flaws, but it is also robust and adaptable. More than that, it is increasingly looking like just the right discovery at just the right moment of history.

Bitcoin was never made to be just another payment system that would be quietly incorporated into the existing financial system. It is the quintessential underdog that will be mocked, scorned, and kicked all the way up until the point when it is desperately needed. If we do have another market crash, we are going to see a sudden realization across the globe of the need for Bitcoin and we are going to have the tools and infrastructure to support that interest.

When that happens, Bitcoin will increase in price many times over before it stabilizes and finally becomes a usable currency in addition to a fantastic commodity.