Bitcoin’s Fibonacci Pattern Shows Three Different Prices to Buy the Dip by CHRIS JOHNSON
Technical investment analysts have always used something called “the Fibonacci numbers” to determine when to buy an asset. And when I say always, I mean it. Born all the way back in 1170, Leonard Fibonacci’s numbers are a sequencing system that is formed by a simple equation.
These numbers may seem random, but their application has been far-reaching and incredibly effective in analyzing everything from why certain flowers have a specific number of petals to what price you should buy an asset. You don’t have to remember what you were taught in high school calculus to understand Fibonacci. Just know that the laws of mathematics cannot be broken, which is why market prices naturally flow into these patterns. In other words, it’s a great indicator for stocks – but the real asset we want to look at today is the one hitting headlines everywhere you look: Bitcoin (BTC). [BTC isn’t the only crypto with moneymaking potential. Click here to discover three coins that could make you 20X more money than BTC…within a couple of months.] BTC, just like almost everything else in the world, has its own Fibonacci pattern, and you can use its trend to determine when to buy the dip. In 2020, BTC dropped down to lows around $5,000 and then rallied to its recent highs just above $57,500. That’s a return of more than 1,000%. The recent spike is reminding traders of the 2017 and 2019 peaks. Each of these quickly led to a voracious selloff that resulted in losses of greater than 75% in both cases as the “bubble” burst. Which is why I wasn’t surprised when, after Janet Yellen and Elon Musk suggested BTC was overvalued, we saw an aggressive selling spree that caused the coin to lose 25% of its value in just two days. Mr. Musk reportedly lost $30 billion and is no longer the richest man on Earth. This has led many to question if another huge drop is on its way. But listen – Bitcoin is entering the acceptance phase. Companies like Visa, a growing portion of the world population, and the biggest banks are all going in on crypto. And the acceptance phase is one of the strongest bull market rally drivers for any asset. So no, this coin’s bullish rally isn’t over. It’s not time to get out. Instead, it’s time to buy the dip. Bitcoin’s predictable Fibonacci trend is signaling big profits, and we can use it to determine the exact price to get in… I’m using the Fibonacci Retracement tool to determine support for Bitcoin. It’s the same tool that was effective in determining support for Microsoft during its meteoric rise, and the analysis has been equally good at timing the right time to “buy the dips” on Bitcoin. This technical tool combined with simple moving average analysis results in the ultimate “buy the dip” signals. The chart below is a pretty simple read of the current “buy the dip” targets on Bitcoin. We’re looking at the Fibonacci retracements – which follow the Fibonacci sequence that occurs naturally with numbers – along with the simple 20-, 50- and 200-day moving averages for Bitcoin. It may look a little complex, but simply follow the lines. We use the Fibonacci sequence to count or measure the natural flow of asset prices. These numbers break down the bare basics of the price movement, which means we can use them to effectively determine a “natural” support level.
The first support level for the “buy the dip” rally starts at $46,985, indicated by the green horizontal line. Not surprisingly, this price range has acted as support over the last two trading sessions for a couple of reasons. First, this is the 38.2% Fibonacci Retracement level – the first round of support from that naturally occurring sequence. Second, Bitcoin’s 20-day moving average is sitting at $48,481. Add to that the fact that Bitcoin is also hovering around $47,500 – round numbers always provide psychological technical support and resistance for assets – and you’ve got what I refer to as “triple barreled support” at Bitcoin’s recent lows. That’s the first “buy the dip level” for more aggressive traders, $48,481 or $48,500 if you like round numbers. If you’re a little nervous about Bitcoin falling more, then move down to the 50% retracement level. Currently at $43,711, the 50% retracement level is your next “buy the dip” price. 50% retracement happens all the time on stocks, and volatile assets like Bitcoin will pay a lot of attention to this price. Finally, those looking for the “deeply discounted dip price” should target the 61.8% Fibonacci Retracement level. It’s the third series in the Fibonacci support levels and has combined forces with Bitcoin’s 50-day moving average to provide a powerful target buying price based on the recent chart. The 50-day moving average is the king of trading trendlines. It’s literally the indication of whether the “trend is your friend” in addition to being a very strong support level in bull markets. The 50-day for Bitcoin is poised at $40,600, just above the current 61.8% Fibonacci Retracement level. As a technical analysis bonus, the same price also represents the January highs for Bitcoin. Recent highs often act as support, especially when combined with a moving average and a Fibonacci Retracement level. For those reasons, $40,000 should be marked as your “Deep Discount Bitcoin Buy Price.” Be careful on holding out for this price though. The acceptance phase is particularly strong right now, and we’re in the middle of a bull market that is clearly being driven by speculative interest. There are a lot of investors moving into Bitcoin, which means you must be nimble and fast. Wondering if you can apply the same analysis to another Bitcoin-related trade? Let’s take a fast look at Riot Blockchain (RIOT). RIOT is a Colorado-based company that’s best-known as a digital currency mining operation. The company uses specially designed computers that generate or mine digital currencies, primarily Bitcoin. In addition, the company also trades in various cryptocurrencies and is developing various blockchain solutions that may extend the use of digital currencies. The company has become a substitute or proxy investment for many investors given the fact that the shares can be bought in a regular securities account instead of special accounts used to purchase cryptocurrencies. Because of that, the price of RIOT is highly correlated with the moves in Bitcoin. That said, a similar buy the dip situation is presenting itself for this stock that is sitting at 200% year-to-date returns after hitting 400% returns for the same period just a week ago.
RIOT slashed through the first Fibonacci Retracement level at roughly $57 on Tuesday as investors were locking in profits from the meteoric rise. That price level is $56.70. It should still be watched because a move above that price will confirm that the rally is back in full swing for RIOT shares. Traders and investors should focus a little lower, around $50 for the next round of support. This price represents the 50% retracement for this volatile stock as well as round-numbered psychological support. Volume on the shares is suggesting that the sellers are done pressuring the stock lower for now, which leads me to target this as my current “buy the dip” price for RIOT shares. As with Bitcoin, there may be some of you that would rather set your target prices a little lower given its recent volatility. Let’s call it the “lowball” price. My analysis of the charts targets a touch of $40 as the price that is likely right for you. $40 represents triple-barreled support for shares of this blockchain mining company based on its proximity to its 61.8% Fibonacci Retracement level (currently at $42.60), the 20-day moving average (currently at $40.43), and round-numbered support at $40. The combination of these three indicators will make for a high confidence buy that should provide some exciting returns over the next few months. We’ll be back together this weekend to go through my Weekend Watchlist. I’m honing my “buy list” to take advantage of the recent short-term correction as we head into another seasonally strong stretch of the year in March.