How do I tackle this BTCUSD chart?

Wondering aloud

I can’t make up my mind about this chart. Technical analysis concepts do apply but fluctuations are just huge. Try to slice finely on very low time frame or go for broad strokes and be ready to deal with big P/L movement?

This is a daily chart of BTCUSD from IG’s MT4 platform. There appears to be a triangle, wedge or downward channel here. I threw out the triangle and the wedge because I couldn’t make them fit. A channel looks good but I have this problem:

  1. If I draw the channel by connecting top to top based on closing price, I end up with the red coloured channel. The lower line looks good as well and could work as support. Big issue is how to deal with those huge spikes below this line.
  2. If I take those spikes into consideration, I could draw a channel by connecting extreme ends instead. The outcome is the blue channel. Problem is this channel will miss the entire price action in January. Is it coming or is it overly ambitious to expect given the stakes are high?
BTCUSD daily chart

BTCUSD daily chart

I am not ready for this.


Problem with cryptocurrencies

I have this friend who is an early adopter when it comes to technology. Because of his sophistication, he was an early entrant into Bitcoin and Ripple. And because he shared his information with me, I looked into Bitcoin early (see here ‘The easy Bitcoin guide for early adopters‘ and here ‘Donors use bitcoin during earthquake; Chinese adopt after media cover‘) but didn’t like what I see.

My observations are simple:

  1. It is too volatile for day to day use. Say I decide on a deal with a party to receive one Bitcoin (valued at USD 11,000) in exchange for a service. Hours later, one Bitcoin falls to less USD 10,000. How do I reconcile that loss? Do I even have a profit margin of 10% for this job? Now some Bitcoin advocates will probably say ‘hold on, it will go to USD 15,000’. Maybe, maybe not. If I provide services in exchange for Bitcoins with this kind of mentality in mind, it becomes pure speculation. Why not just trade it? How can a real business that values stability and predictability deal with an outcome that cannot even be predicted accurately on a day to day basis?
  2. Blockchain might be a really valuable innovation but it is hard to see how policy makers will put up with a currency that is not within their control. Eventually some central banks might introduce their own cryptocurrency but I just don’t see the current ones become legitimate especially when they are plagued by volatility, hacks and all the shadier associations.
  3. My very sophisticated friend tells me that he wants to create his own cryptocurrency. On one hand I am happy for him and I genuinely believe one should have that kind of entrepreneurial drive, the other hand tells me that some cryptocurrencies might even become obsolete. Why? If the barrier to entry for any new coin is too low, there would eventually be an entire universe of new cryptos. What makes them special anymore? This comes back to observation number 2. Cryptocurrencies backed by an ‘authority’ will be given a reason to operate. The others have to prove themselves.
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