Bitcoin Falls Because Of A 13th Century Mathematician
The price of Bitcoin, the largest cryptocurrency out there, just fell to its lowest level since the start of the year. The previous major low of $5920, registered in early-February, has finally been breached. BTC/USD is currently hovering around $5850, which brings its total loss for the week to 9.3%.
But why is Bitcoin crashing this time? Maybe it has something to do with Japan’s financial regulator, which appears to have renewed its crackdown on cryptocurrency exchanges. Maybe it has something to do with Bithumb, the South Korean exchange, from which hackers recently stole $30 million worth of digital tokens. Maybe, but we have a simpler explanation and it has something to do with this man:
Please, accept our apologies, but we could not find a photo of him. This is Leonardo Fibonacci – a 13th century Italian mathematician, known for his discovery of the famous sequence of numbers named after him, from which several very interesting “Fibonacci ratios” derive. 0.618, 1.618 and 0.382 are the three Fibonacci ratios, which not only appear to govern a number of complex structures in nature, but have their place in the financial markets, as well. 0.382 in particular seems to be the very reason for this week’s Bitcoin selloff. The chart below was sent to our subscribers as a short-term update on Wednesday, June 20th, while BTC/USD was still holding above $6620. It shows that the largest cryptocurrency reversed to the south shortly after touching the 38.2% level.
Fibonacci analysis cannot be conducted on its own, because the analyst would not know what to measure and will end up finding Fibonacci ratios all over the place. In order to recognize a reliable Fibonacci support or resistance level, one must put it into the context of the Elliott Wave Principle – a pattern recognition technique, which states that price trends develop in repetitive patterns, called waves. A five-wave sequence, called an impulse, indicates the direction of the larger trend and that is exactly what we thought was in progress on the 2-hour chart of BTC/USD shown above. The only problem was that its fifth wave – v -was still missing.
The good news was that the recovery between $6120 and $6842 looked like a w-x-y double zigzag correction, which fit perfectly in the position of wave iv. In addition, fourth waves usually terminate after retracing 38.2% of the previous third wave. Four days ago, Elliott Wave and Fibonacci analysis combined suggested that as long as $6842 was intact, more weakness in the price of Bitcoin should be expected. The updated chart below shows how things went.
The bulls made an effort, but $6842 survived. From then on the bears took control of the situation and dragged the price to a new of $5833 so far. But please, do not blame Leonardo Fibonacci for the crash. He did not invent the ratio, he simply discovered it. And we are so glad he did, because it adds another layer of precision to the arsenal of the Elliott Wave analyst.