Bitcoin has staged a notable comeback from its 2018 crash. From a level of about $4,000 through the month of March, 2019, bitcoin had a two-day 23% spike from $4,135 on April 1, 2019 to $5,102 on April 3, 2019.
Bitcoin then moved sideways in the $5,000 to $6,000 range until May 8, 2019 when it staged another three-day spike from $5,932 on May 8 to $7,255 on May 11, a 22% surge.
Combining the April 1 and May 8 spikes, the bitcoin price moved from $4,135 to $7,255 for a spectacular 75% price rally in six weeks.
By last Thursday morning, it soared even higher, to over $8,300.
This rally was bitcoin’s best price performance since its 83% collapse from $20,000 in late December 2017 to $3,300 in December 2018. That crash marked the collapse of the greatest asset price bubble in history, larger even than the Tulipmania of 1637.
The questions for crypto investors are what caused the recent rebound in the price of bitcoin and will it last? Is this the start of a new mega-rally or just another price ramp and manipulation? Has anything fundamental changed?
If you’re beginning to suspect these are leading questions, you’re right.
Of course, bitcoin technical analysts are out in force explaining how the 100-day moving average crossed the 200-day moving average, a bullish sign. They are also quick to add that the 30-day moving average is gaining strength, another bullish sign.
My view is that technical analysis applied to bitcoin is nonsense. There are two reasons for this. The first is that there is nothing to analyze except the price itself. When you look at technical analysis applied to stocks, bonds, commodities, foreign exchange or other tradeable goods, there is an underlying asset or story embedded in the price.
Oil prices might move on geopolitical fears related to Iran. Bond prices might move on disinflation fears related to demographics. In both cases (and many others), the price reflects real-world factors. Technical analysis is simply an effort to digest price movements into comprehensible predictive analytics.
With bitcoin (to paraphrase Gertrude Stein) “there is no there, there.” Bitcoin is a digital record. Some argue it’s money; (I’m highly skeptical it meets the basic definition of money).
Either way, bitcoin does not reflect corporate assets, national economic strength, terms of trade, energy demand or any of the myriad factors by which other asset prices are judged. Technical analysis is meaningless when the price itself is meaningless in relation to any goods, services, assets or other claims.
My other reason for rejecting the utility of technical analysis is that it has low predictive value when applied to substantial assets and no predictive value at all when applied to bitcoin.
If you follow technical analysis, you’ll see that every “incorrect” prediction is followed immediately by a new analysis in which a “double top” merely presages a “triple top” and so on.
Technical analysis can help clarify where the price has been and help with relative value analysis, but its predictive analytic value is low (except to the extent the technical analysis itself produces self-fulfilling prophesies through herd behavior).
That said, what can we take away from the recent bitcoin price rally, putting aside its flash crash for the moment?
The first relevant fact is that no one knows why it happened. There was no new technological breakthrough in bitcoin mining. None of the scalability and sustainability challenges have been solved. Frauds and hacks continue to be revealed on an almost daily basis. In short, it’s business as usual in the bitcoin space with no new reasons for optimism or pessimism...
- Source, The Daily Reckoning