Bitcoin: Did the Bubble Pop? Or is this a Correction?

Analysis following the October run-up and subsequent drop in price

In my last entry, I discussed the October rally as of the 19th, prior to the latest peaks at $233 (MtGox), $206 (Bitstamp), and up to ¥1500 (depending on which Chinese exchange you looked at). Here is a look at MtGox's 30-day chart as of 10/25:

As of this writing, Mtgox is at $188 (down 20%) and Bitstamp is hovering around $180 (down 12-13%). So it begs the question — did the bubble pop, indicating the likelihood of further sell pressure — or did the price simply rise too fast, necessitating a correction before resuming upward movement? Unfortunately, no one can answer that question with certainty.

Here's a look at this morning's action on BTC China:

i.imgur.com_td4jnnzl.jpg

As you can see, sell pressure mounted very quickly, as did the charge to re-test the ¥1000 support level for the second time since the peak. Shortly after, though, the sell walls shrunk considerably, and it became clear that for the moment, the ¥1000 support level was going to hold:

i.imgur.com_uyc6dprl.jpg i.imgur.com_kybpe9tl.jpg

At the moment, the last price on BTC China was ¥1,081. Bids have crept up a bit:

The somewhat healthy bid depth, in combination with the fact that we have seen a double-bottom above the ¥1000 support level — often an indicator of a local bottom — may indicate that this was indeed a correction, and that we may see a rally from here.

However, something else occurred to me as I was perusing the daily charts. Granted, these are not proper timescales to glean too much information from, but still, I had hoped for a breakout here:

The short-term charts resembled an "inverse head and shoulders" formation. Above, on MTGox and BTC-E, we can see the completion of the right shoulder as it connects with the neckline, indicating a possible breakout above the neckline. Instead, the exchange rate bounced right off of the neckline and has resumed downward movement.

To be sure, bulls are indicating that this was simply a short-term correction, after which the bitcoin price may consolidate for some days or weeks, or simply continue to rally. On the other hand, some bears indicate that this was rapid parabolic movement followed by a crash — the “popping” of the bubble — and that we will see further downward pressure on the exchange rate in the near future.

For perspective, I'll leave you with MTGox's longterm 3-day chart. Whatever your position — bull, bear, unsure — good luck!


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