(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Bitcoin is poised for a plunge by as much as 50 percent from its current price of roughly 15,000, according to a technical analysis. Bitcoin peaked around 20,000 on December 17 and has fallen by about 25 percent since that time. But a new analysis of technical charts suggests that bitcoin could fall below 8,000. As happened this fall, bitcoin's drop could merely be a short-term pullback before more huge gains - or it could be the first leg of a drastic decline for the cryptocurrency.
An Investopedia article on September 11, noted a troubling technical pattern in the chart of bitcoin, preceding a roughly 30 percent decline in the price from around 4,400 to approximately 3,000 in few short days. It was after that pullback that the price of bitcoin went on to surge to roughly 20,000 over the next couple of months. (See: Why Bitcoin Could Fall By 30 Percent)
Potential For A Decline To 7,700
There presently is a clear level of support in bitcoin, which could help minimize losses if the currrency holds at 11,800, a decline of about 20 percent from current levels. The next strong level of support comes around 7,700, about 49 percent lower. Even that level of support could be questionable because it was only created during a relatively short time frame, three weeks.
The relative strength index (RSI) for Bitcoin began trending lower on December 7. It reached a technically overbought level by rising as high as 95, far higher than the 70 level, when investments are considered overbought. As the RSI proceeded to decline, the price of bitcoin continued to rise, a divergence that's a strong bearish indicator. Bitcoin's RSI level would need to fall below 30 before indicating the cryptocurrency is oversold.
Volume has steadily declined as well after peaking on December 7. The lack of volume in bitcoin could be a sign that the currency may have yet to reach a bottom. A positive sign would be rising volume, an indication that weak holders may be getting out of their positions.
The 60-minute chart shows how the uptrend has been broken. The chart also has the making of an upside down flag or pennant formation, which would be a bearish indicator as well, indicating a further decline is potentially on the way, sending the price to support at 7,700.
No matter what chart you look at, one conclusion is overwhelming. Bitcoin is set for more declines.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.