Investing with the Moon

Posts Tagged ‘Bitcoin’

The bitcoin boom

Posted by Danny on May 9, 2017

Stocks keep trading with a positive bias and major indexes are reaching new all time highs. Our LT wave for May suggests some weakness is up next. We will find out soon. Here is the current S&P chart:

^SP500 (Daily) 7_28_2015 - 5_8_2017

The S&P exceeded its March 1 high yesterday, but it didn’t manage to stay above the 2400 resistance level. It may push through in the coming days, but if that doesn’t happen it will start to look like a failed breakout and that would probably trigger some selling.
The Earl indicator (blue line) has turned down, but the slower Earl2 (orange line) is still headed higher. This can go either way. A continued rally would probably target 2500 where it would test the upper boundary of the blue trend channel. A pullback could give us a revisit of 2300 for a test of the lower boundary.
I am short term neutral until we get more clarity.

Bitcoin is getting a lot of buzz recently as it keeps climbing to new record highs. I try to do a post about bitcoin once a year, so this a good opportunity for an update. I have been quite lucky with my calls on the crypto currencies. I went bearish on bitcoin in December 2013, just weeks before it peaked above $1000. In my second article I called for bitcoins to drop as low as $180, which came true a year later. And in my most recent post in October 2015 I gave a long term buy signal for bitcoin and also tipped ethereum. Ethereum has indeed grown into a strong contender in this space. You could pick up ETH for less than $1 when I wrote my piece and it traded just below $100 in the recent weeks. That’s a nice 100-fold increase in less than 2 years.
So, what’s next for bitcoin? Here is a long term chart:


Bitcoin has been climbing in a nice trend channel since 2015. BTC trades above $1700 as of today, so it looks like it’s going to test the upper boundary of the channel. A breakout above $1900 is possible and would start a blow-off phase like in 2013. But that remains to be seen.
On the downside, the $1000-1200 zone is major support that must be held. A drop below that zone would tell us that newer crypto currencies (possibly ethereum) are taking over, just like Google took over from Yahoo at some point. I still think that most altcoins will go to zero once a crypto currency becomes the clear winner in terms of linking real value and services within its coin.
The next upside targets for bitcoin remain at $2457 and $4246.

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Bitcoin wakes up

Posted by Danny on October 26, 2015

The market kept climbing last week and didn’t stop for any of the resistance levels we had expected. It’s also not bothering about the current lunar red period. What’s going on?
Maybe we are seeing the first positive red period in almost a year. And that would be an indication that the market is starting another leg higher in its multi-year bull market. It will be more clear by the end of the week. Let’s have a look at the S&P 500 (click image to enlarge it):

S&P 500

The S&P is back within the range it held from February until August. The next major overhead resistance is now at 2100-2130. The Earl (blue line) has dropped a bit but appears to turn back up. We could be going to a bearish divergence in this indicator. The slower Earl2 (orange line) is still going up but getting very high. This looks like a market that is more than ready for a pause, so I don’t think there is much upside left at this point.


Bitcoin quietly gave a weekly buy signal in our weekly reversal levels a few weeks ago. In my previous articles on bitcoin I was rather bearish: What will replace bitcoin? and Bitcoin price targets, but now could be a good time to turn bullish. Here is a long term icebergs chart for bitcoin (click image to enlarge it):


For the first time since late 2013 we see some significant bullish energy (green) enter the picture. In 2013 the rallies ended in massive overheating (red lava) followed by major corrections. My downside target of $180 was reached earlier this year and a nice base has formed just above $200.
A very long period of “floating ice” has just ended and bitcoin is slowly heading higher. How high can it go? I don’t know, but with this chart $500+ is certainly not out of the question.

As I wrote in 2013, the value of a crypto-currency will start to depend on real intrinsic value that becomes tied to it in some way. It is now clear that this can also be the value of services that are being connected to blockchain technology. This is starting to happen with Bitcoin and also with newer implementations like Ethereum.


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What will replace bitcoin?

Posted by Danny on December 3, 2013

It seems like every other site or blog is cranking out an article about bitcoins those days, so let’s do one too.

Let me start by telling that I have always been a fan of internet currencies and 15 years ago I was among the first one thousand people to open an account with the now defunct e-gold. So, it may surprise you (or not) to know that I haven’t gotten into bitcoins and also do not plan to buy any. Here is why.

As with every other form of “money”, a given piece of currency is only worth what other people are willing to give you in exchange for it. It can always go up or down. This is no different for bitcoins. And what people are willing to give you in exchange for a given unit of currency depends among other things on how scarce that currency is.
When I first heard about bitcoins a few years ago, the concept stood out for its decentralized system, and for its mathematically guaranteed limit of no more than 21 million units that can be created (“mined”). The latter was of course designed to create a certain scarcity, which is needed if the currency is to have any perceived value.
But I was always wondering: what will stop people from tweaking the formulas a bit and start other competing crypto-currencies? And that’s of course what is starting to happen. On an exchange called cryptsy over 60 different crypto-currencies can be traded, and you can only expect that number to continue to rise as long as there are people who pay for such currencies.
The implication is that there is only an artificial scarcity of bitcoin style crypto-currency. There is no real limit to the number of different crypto-currency systems that can be designed, so in reality there is an unlimited amount of crypto-coins, which means their true value is zero. What will happen when people wake up to the fact that crypto-currency can be created in unlimited quantities? I don’t know, but that’s why I don’t buy into bitcoins or any of its clones that are popping up.

That being said, I do think that crypto-currencies are here to stay. I think some of the decentralized protocols designed for bitcoins will find good use.
But some competing crypto-currencies will eventually find ways to offer a more attractive set of features than bitcoin does. For example, savvy companies may link a crypto-currency to intrinsic value , e.g. the delivery of a future service, just like corporate scrip. A company could also use its own stock to be the currency to float within their network. I think facebook and twitter have missed a really great opportunity by cashing in their shares for $. They could have issued 1 crypto-share to each of their users, and let that share be used as a currency. The more the currency gets used, the more valuable the network and thus its shares become, attracting more users. Such a crypto-currency would have intrinsic value because it represents ownership in the company and could pay dividends.

So, I think that’s what will replace bitcoin: crypto-currencies that are somehow linked to real intrinsic value, and crypto-currencies that have designed a way to pay dividends out of profits generated within the system, without needing to know who owns the crypto-coins. They will neither be centralized nor decentralized but rather “semi-centralized” . When that happens the decentralized crypto-currencies with no link to intrinsic value will start going to zero.

I don’t expect bitcoins and its spinoffs to be outlawed. It will become too difficult to control. Governments will eventually adapt by abolishing income taxes and increasing property taxes, as they will always find a way to suck your blood “help you”. Unfortunately, you can hide your crypto-coins and what you do with them, but you cannot hide your home or your car. So, it will be far more simple and effective to tax you on your tangible property. Income tax has never made sense anyway, because it amounts to punishing creativity and productivity.
Zero interest rates will never revive the global economy, while zero income tax rates would do it within a year. The only question is: how long will it take our goverments to realize that they are the sugar in the economic tank? Bitcoin could become the catalyst for that change. But I expect it to be replaced by newer ideas fairly soon, just like AltaVista was superceded by Yahoo and Google…

Be well,


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