Crypto Winter, the term given to the long bullish meltdown of cryptocurrencies during 2018, may not thaw for a few more months, according to a prominent analyst and trader. Murad Mahmudov, a Princeton graduate turned diehard crypto trader and hedge fund head hopeful, has made a startling prediction that Bitcoin’s southerly direction may not bottom out until it traverses the $1,700 level. His missive on Twitter immediately drew derision from the analyst community, which questioned his reliance on obscure moving averages to support his thesis.
It would be easy to dismiss Mahmudov and his radical hypothesis, but, at heart, he is actually bullish on Bitcoin and its altcoin brethren. His dismal sub-$2,000 prediction does seem to run counter to current consensus thinking, but, per one news outlet’s review of his previous prognostications, “The trader recently confirmed that a long-term downtrend line for the aggregate value of all cryptocurrencies was hit for the eighth time in a row.” Would you take heed of an analyst’s alert, if he had previously been correct not one, not two, but “eight times in a row”?
His recent forecast refers to this rather “overly annotated” Bitcoin price history chart:
Suffice it to say that much of his commentary did not translate well when his picture was uploaded, but his logic is based on prior patterns and how he has conveniently broken down history into four specific “cycles”. He then posits that the transition from each cycle happens after prices hit a particular Moving Average, i.e., “Cycle 1” crosses the 100-Day MA; “Cycle 2”, the MA200, and therefore “Cycle 3” will cross the MA300.
His projected pricing path that he has drawn from Cycle 3 to Cycle 4 is accompanied with the following predictive note: “Final Bottom “Steady” Support will be found at MA300 [With a wick down to MA350 – 400] [My Prediction]. In other words: A wick down to 1700 – 1850 area to quickly return and settle in the 2200 – 2400 area. I believe the bottom will form between MA300 & MA400 due to past patterns & how particularly overstretched the 2017 bubble was.”
Are you ready to believe? Are you ready to short Bitcoin big time? You might want to take a moment before rushing to your chosen exchange’s trading platform. Technical Analysis, TA for short, can be a wonderful tool for measuring and predicting investor sentiment and psychology, but only when there has been ample pricing history over an extended period of time. Unfortunately, cryptos are still in their infancy stage. Most analysts understand this fact and scoff at anyone’s belief that pattern recognition and other TA techniques can be relied upon at this point in time.
Does this logic suggest that TA has no place in Crypto-Land? Of course not. Even in the traditional stock or forex trading arenas, TA, at best, suggests certain trade setups with a degree of probability attached. When TA is applied to cryptocurrencies, the potential range of probabilities is stretched to a higher degree. Sometimes, the tool may be spot on, sometimes it may be way off, but it is still fun to speculate, as Mr. Mahmudov has done in his quite detailed use of pattern recognition.
It was also natural for his analytical associates to send flak his way after even considering a 300-Day Moving Average, much less an MA400. Market psychology has trouble getting a grip with a 200-Day Moving Average, let alone anything more extended. The quips that came flying ranged from “300 MA, what a joke, only in crypto” to “The 300 MA doesn’t have as much inherent importance as the 200 MA does”. The Twitter feed is also replete with effusive compliments and a few nasty comments, too, but interesting, just the same. Traders are searching for the crypto “Holy Grail” indicator that will translate simple pricing behavior into enormous profits down the road.
Several comments pointed out the obvious – fundamental forces drive price behavior, not TA, and the outlook from “FA” perspective is very bright for 2019. Fidelity Investments crypto trading and custodial services, Intercontinental Exchange Inc. (ICE) introduction of the Bakkt exchange, NASDAQ cooperating with seven crypto exchanges, and Samsung Galaxy S10 to have a crypto wallet app attached — each of these actions could drive a very positive response in the marketplace, which could then allow the SEC to approve finally a license for a Bitcoin ETF. If the SEC complies, the general belief is that the floodgates will open, and the Red Sea will part.
Is Bitcoin about to crater once more or take off for the Moon? Your guess is as good as mine, but support from technical analysis today is a hit or miss proposition. Like a broken watch, it could be right two times a day. As for Mr. Mahmudov, his friends regard him as quite bullish. Even though his previous tweets have suggested that “titanium level resistance” resides at the $4,000 level, he has also said in interviews that he “wouldn’t spend the cryptocurrency for at least ten years, as the asset’s potential upside and asymmetric risk profile makes it nonsensical to use BTC at current rates.”