Bitcoin, which is trending the market for a long time, was about to break the new high on Wednesday at the price of $13,200. When it was the time of Bitcoin’s take off, it suddenly got sold off 10% of its price in just 90 minutes. What should have happened with the coin? Well, it’s a long time saying, “What goes up must come down.” It’s a rule, for everyone, everything, for living, for non-living, for good times, for bad times, it’s the fundamental law of physics.
In the market of security, this law holds very true. Securities rise in parabolic fashion and fall in the same manner. For Bitcoin, this has gone really harsh but true. Why this rule holds true for Bitcoin so badly? The reason is Investor Psychology. It is evidential in the technical analysis of the security. Bitcoin is a mania, a mania whose price behavior moves in the single patter with very little variation. Usually, every market contains this mania.
Picture mania can be seen everywhere. From Dutch Tulip craze in the 1600s to the dot – com bubble in 1999. From the housing market in the past 15 years to the marijuana stocks last year. Every individual security has this mania. The chart explains clearly about investor psychology around the Nasdaq from 1990 – 2003.
What’s the reason behind these rises and falls? Well, it’s a very common one.
Something provokes hype and the news gets spreads. Word of mouth determines everything in the world of news. The news comes on a news channel and reaches to everyone in just a minute or two. As the news spread, myriad investors, traders and institutions heaps into security. But the cons of security are that it takes time to reach from one to many. It means the demand gets higher than what is supplied. Short sellers enter the market early and they were forced out of their position, which creates more demand in the market. The need for security in the market upsurges rapidly, in less time.
As time surpasses, the craze among the masses decreased. Sometimes it may be due to the less worthy of the product and sometimes it may be due to the external force as well. It may be due to the price of the products that may seem to be gotten out of control suddenly by the common people. Suddenly the products selling rate surge, which results in the downfall of the stock, which upsurge the productivity and supply of the product.
Bitcoin mania is where the less change can be seen in the pattern and the same has happened with Bitcoin today. In June, a rise has been seen in the price of Bitcoin of $13,000 and then again it goes back to $10,000. The huge selloff that occurs at the same time is known as ‘double top’. It means buying exhaustion, psychologically. The time at which it reaches the short-term top, it becomes difficult to break the price by security.
As expected, the parabolic rise may fall soon but it will take time. The reason behind this fact is the optimistic mind of the traders. There are many traders who have bought into the initial premises and they are the true believers. Then there come the traders who are at the very top and holding a large amount of share waiting for another big run so that they can escape their original investment. This has been the story of Bitcoin so far.
Well, this is not any new story. Bitcoin has been in this scenario two times previously. In 2013, Bitcoin hits $1,000 and then collapsed by 80%. In 2017, Bitcoin hits $20,000 and then collapsed by 85%. Bitcoin is volatile security. It can take you to height and bring you down in minutes. Be careful and trade carefully, as with Bitcoin, it’s worth not taking chances and make a good plan before entering the market.