Cryptocurrency and blockchain technology continue to spread across the world, yet somehow, the most well-known cryptocurrency has been plummeting all year. Bitcoin (BTC) is currently the world’s biggest cryptocurrency with a market cap at time of writing of $105.5 billion. Since reaching its highest value of nearly $20,000 in December 2017, BTC has lost more than 70% of its value. The trend shows no signs of reversal, though some experts remain optimistic.
BTC Past, Present, and Future
After its dramatic climb in 2017, BTC started 2018 off horribly. Q1 of 2018 was the second-worst quarter in the coin’s history, with the value of BTC falling to around $6,200 in February. As the year progressed, optimism began to rise throughout the crypto-community. In May, optimism was at a yearly high as Bitcoin flirted with the $10,000 price point. Unfortunately, BTC has since fallen. It has dropped to a value of $6,165 (at time of writing), and has the public wondering if there is any good news for the future of BTC in 2018.
Trend analysis tools are used by some BTC traders to develop trend trading strategies. The most intelligent and profitable trading decisions are not made from emotion; they are made from objective signals in the market. Some of the top trend analysis tools to help identify those signals include DMI, ADX, and DVAN. Utilizing these tools can provide insight into where BTC may be heading in the remainder of 2018.
Bitcoin’s Negative Directional Movement Index (DMI)
Many traders look to the Directional Movement Indicator, also known as the directional movement index or DMI. DMI is used to show the momentum of either convergence or divergence, which gives traders the confidence they need to stay with the trend when price and DMI are in sync. It also helps with risk management when price and DMI disagree.
DMI is a valuable tool when analyzing price strength and direction. It proves exceptionally useful for trend trading strategies because it can illustrate when trends are strong or weak, allowing the trader to choose to enter the market on the strongest trends. Being able to gauge the strength of price movement as well as see periods of high and low volatility gives traders an edge over people who do not consult the DMI.
BTC’s current DMI is on its strongest negative trend since the large sell-off early this year. It is important to note that while DMI is a useful tool, during periods of extreme price variation, the two lines can become very volatile. As such, the use of different trend-trading tools may be a wise decision during such periods.
Bitcoin’s Current Average Directional Index (ADX) is Dropping
The Average Directional Index (ADX) not only identifies trending conditions, it also helps traders all over the world find the strongest trends to make the most profitable trades. The ability to quantify a trend’s strength is a factor that sets some traders above the rest. Do not allow ADX to become a stranger; you want the trend to be your friend.
ADX values are also important for distinguishing whether the conditions are currently trending or non-trending. When the ADX value is between 0-25, the trend is considered to be entirely absent or very weak. Once the ADX value hits above 25, then that trend is strong enough to apply trend-trading strategies. Conversely, when ADX is below 25, many traders will avoid trend-trading strategies.
The ADX line for BTC is currently at 39.3, which classifies it on the strong side since it is over 25. However, this value has decreased significantly from December 2017, when the value was near 60.
The direction of the ADX line is important for reading trend strength. When the ADX line is rising, trend strength is increasing, and the price moves in the direction of the trend. When the line is falling, trend strength is decreasing, and the price enters a period of retracement or consolidation. This is exactly where BTC sits today. Therefore, the ADX for BTC does not foreshadow a bright future.
BTC’s DVAN Trend Line
Divergence Analysis Inc. (DVAN) has been the world’s lead advisor for private and institutional money managers since 1989. DVAN uses proprietary money-flow methodology to interpret and analyze markets. As the tool has proven to be useful for over twenty-nine years, it is safe to say that DVAN trend lines are a reliable tool.
Unfortunately, BTC is not showing any good signs from its DVAN trend line. The DVAN trend line currently shows that the June BTC market has been holding onto the overall bearish sentiment that started around mid-May.
Will the Price of BTC Correct Anytime Soon?
While computer trend analysis indicates a dark future for BTC, some experts in the crypto-community disagree. John McAfee has stated he expects the number one cryptocurrency to reach $15,000 by June 2018. Fundstrat Global Advisors has predicted that BTC will be valued at $64,000 by the end of 2019. Fundstrat’s Tom Lee, is a bit more conservative but believes that BTC will reach $25,000 in 2022. While the short-term trend analysis strategies do not show many positives in the near future for BTC, experts remain confident in BTC’s long-term future.
BTC is often referred to as cryptocurrency’s most stable coin, but it has not lived up to that label this year. Traders should carefully analyze the market when making a decision to enter. While many experts remain optimistic in the long-run, trend-trading analysis tools have their warning sirens on at the moment. There have already been huge decreases in BTC’s value in 2018, and the DMI, ADX, and DVAN indicate that BTC will continue on this downward slope through the rest of the year.