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Bitcoin Trading Notes: Market Momentum and Spread Trading

Bitcoin Trading Notes: Market Momentum and Spread Trading

Bitcoin’s latest price climb has garnered quite a bit of attention, breaking all time highs and leading many to declarations of a bubble. While the price and resultant media storm have been enjoyable to watch (particularly for bitcoin holders), the markets have also offered a number of more nuanced dynamics worth noting.

The BTC / USD rate remains more than twice what it was just one month ago after a series of dramatic climbs beginning in mid-October. This weekend in particular saw quite a bit of notable activity as BTC / USD fell 26% from $360 to $260 in just eight hours before recovering to $335 most recently. Though there are significant underlying fundamental differences behind the bitcoin economy now relative to similarly dramatic gains in the past, a number of market signals are worth noting.

Market Momentum

Though bitcoin has climbed more than 2,200% in 2013 alone, a series of significant drops have occurred along the way. Timing the exact peak of a price climb can be difficult, but occasionally there are indications that the bitcoin market is getting close to such a point. Just over two weeks ago we pointed out what historically unsustainable momentum looks like by looking at 10-day price velocity. This weekend saw a similar scenario, with the metric reaching >0.5 on Saturday, a level only seen in the final days of the June 2011 and April 2013 bubbles and followed by a significant correction thereafter. Incidentally, the latest 26% drop in BTC/USD occurred the day after that level was reached.

price velocity


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This entry was posted on November 11, 2013 by and tagged .

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