We’ve seen a very strong move in Bitcoin this Friday. The price moved up by good 16 and a half percent measured from the opening to the closing price. However, the move continued into Saturday and in less than a day, measured from low to high, rallied by almost 40 percent. Let’s try to put this into perspective and answer a couple of questions. For example we are interested how does the magnitude of such a move rank since 2010 and what does this mean for future expectations.
For the purpose of this analysis I’ve used BraveNewCoin Bitcoin Index, because it goes the furthest back in time. Let’s get straight into it.
The magnitude of Friday’s move was 16.61% on a closing basis. Since 18th of July, 2010, this was 43rd largest daily move. However this two day 41% move, measured from low to high, was 58th largest daily move.
It’s easy to get very excited about such moves. So what does it mean going forward? Do such moves precede more strength or should we fade them? For this analysis I analyzed the largest 50 daily moves on a closing basis and split them in two groups. In the first group (black) the price is less than 20% away from all time highs, and in the second (red) the price is more than 20% away.
Here is the price chart annotated with all 50 largest daily moves.
Let’s focus on the moves that happened more than 20% away from all time highs, because the price currently also more than 20% away from Dec ’17 high. Of the 50 largest daily moves there are 20 such that we’re interested in. Of which 2 happened this year, so I will rule them out, because the jury is still out and we don’t know yet how the price will move in the future.
What I wanted to answer is should we expect more strength or a lower low after such a move. Only after 4 out of 18 moves a lower low didn’t occur, and even among these 4 one was the previous cycle bottom (15th of Jan 2015) and one happened during the 2017 bull run.
So, what does this mean? One should not exclude a price rally to new all time highs but based on historical events we should expect with about 80% likelihood that a lower low will occur first.