Commodity Blog

The turbulence following the $65 million Bitfinex hack appears on the surface to have been short lived, as bitcoin is once again stuck between two channels. Prior to the hack, bitcoin bulls were enjoying their best run since 2013, with prices almost doubling to $800 per coin again. The previous channel was between $640 and $680. Now the price has found a new channel at a slightly lower level, between $565 and $575. It is important to note, however, that this new channel is more volatile than the last.

Two pieces of important information can be gleaned from the charts following the Bitfinex losses.

First, in the month before the hack, bitcoin’s bull run had repeatedly hit a brick wall at the $680 level. Resistance there was repeatedly tested to no avail, with each run meeting extended profit taking sell offs. The bull run was stalled out and looked to be over, and then one of the largest crypto-currency exchanges in the world was attacked and lost tens of millions. Bitcoin found footing again at around a 13% loss in price. This is indicative of real strength, and should not be overlooked. Can you imagine what the sell Giant Bounce House off would be like were the Nikkei or the New York Stock Exchange hacked and lost tens of millions of customer funds? Especially with the US market close to record highs? There would be an intense sell off as people looked for safer ground. Bitcoin experienced just that scenario and only lost 13% before finding steady footing. Long-term bitcoin holders can take this as as sign that bitcoin now has fundamental support going forward.

Second, the nature of this new channel between $565 and $575 is volatile. We have returned to a pattern market that can be exploited by day trading. RSI patterns have once again been established between 35 and 70. These are displayed on the 24 hour TradingView chart above. There are several instances of RSI dipping to 30 or below, and each is followed by a short run. Traders can establish long positions at an RSI of 30, then sell those positions when the RSI crosses back above 55 or 60. On the short side, twice RSI breached 70 and was then immediately sold off. Traders can establish a short position at 70 and then sell once RSI has fallen back to 50.

Summary

Longs are in a great position, you can now stockpile more bitcoin at a 13% discount over last month. Additionally, and perhaps most importantly, there is now more evidence that long positions will be rewarded, with bitcoin essentially shrugging off a huge hack and loss of customer funds. The US Stock Market will eventually make its long awaited pull back from record highs, and bitcoin will almost assuredly spike in price at that time as well.

Short term traders are also in a position of strength. Volume, variance, and short lived runs are the breath of life in day trading. Short and long positions should be established, then quickly sold off on set RSI markers as discussed above. Remember, patterns can be disrupted any time. Be sure to set a 2% to 5% stop loss on these day trades so that you don’t give your profits back when the pattern breaks.