- With bitcoin’s rise to 17-month highs, the Mayer multiple
(a ratio of price to the 200-day moving average) is teasing a break
above 2.40 – a level that has marked the beginning of speculative
bubbles in the past. - BTC may see a short-lived spike to resistances at $17,230 (January
2018 high) and possibly to $20,000 (record high) if the Mayer multiple
finds acceptance above 2.40. - The hourly chart is flashing signs of buyer exhaustion, however, so a correction to $11,000 cannot be ruled out.
- A UTC close below the May 31 high of $9,097 would abort the bullish view.
Bitcoin’s (BTC) surging price over the last week is reminiscent of the bull market frenzy observed a year and a half ago.
The leading cryptocurrency by market value rose to
a 17-month high of $12,936 on Bitstamp earlier today. At that price,
the cryptocurrency was up $3,900 from the level of $9,036 seen a week
ago.
Notably, with the near 90-degree rally to 17-month highs, the ratio of bitcoin’s price to the 200-day price average – known as Mayer multiple – printed a high of 2.42, a level which was last seen in early January 2018.
The Mayer multiple essentially quantifies the spread between the
price and the 200-day MA. An above-1.0 ratio indicates BTC is in bull
market territory above the 200-day MA, while a reading below one implies
the cryptocurrency is in a bear market below the 200-day MA.
That said, over the years it has been observed that a reading above
2.4 signifies the beginning of a temporary speculative bubble – a
self-feeding cycle of higher prices attracting more bids, leading to
further rally.
Daily chart
The Mayer multiple rose above 2.4 on Mar. 4, 2013, when the price was
trading at $36.00, representing 176 percent gains over lows near $13
seen in December 2012. More importantly, the cryptocurrency rallied more
than 600 percent to $259 in the following four weeks before falling all
the way back to $45 on April 12.
Further, prices rose from $11,000 to $20,000 in 16 days following the
ratio’s rise above 2.4 percent on Dec. 1, 2018. Again, the bubble was
short-lived, with prices falling to $12,000 on Dec. 22.
On similar lines, BTC had gone ballistic, rallying by more than 300
percent to $1,163 in three weeks following the Mayer multiple’s move
above 2.40 on Nov. 7, 2013. By Dec. 18, however, the price was trading
at lows near $350.
So, if history is a guide, then the fear of missing out may kick in
once the Mayer multiple finds acceptance above 2.40, leading to further
price rise toward the record high of $20,000.
As of writing, bitcoin is trading at $12,521, representing 10 percent
gains on a 24-hour basis. Meanwhile, the Mayer multiple is seen at
2.40.
The cryptocurrency has pulled back from 17-month highs hit earlier
today, leaving signs of bullish exhaustion on the short duration chart.
Hourly chart
Bitcoin created a doji candle with a long upper shadow earlier today.
The doji candle – a sign of bull indecision or exhaustion – is backed
by highest sell volume (marked by arrow) since June 6.
Such candles often mark a local top, according to Alex Kruger, a prominent fundamental and technical analyst.
As a result, a deeper pullback, possibly to the psychological support
of $11,000 cannot be ruled out – more so, as a widely followed
long-term indicator is reporting extreme overbought conditions.
Weekly RSI
The 14-week relative strength index (RSI) is currently hovering above 81.00, the highest level since mid-December 2017.
While the case for a minor pullback is looking strong, the overall
outlook will remain bullish as long as the price is held above the May
31 high of $9,097 and the cryptocurrency could chart another meteoric
rise toward $20,000 if the Mayer multiple rises above 2.40.
Disclosure: The author holds no cryptocurrency at the time of writing
Green arrow image via CoinDesk archives; charts by TradingView
The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.
CoinDesk is an independent operating subsidiary of Digital Currency
Group, which invests in cryptocurrencies and blockchain startups.
This article is intended as a news item to inform our
readers of various events and developments that affect, or that might in
the future affect, the value of the cryptocurrency described above. The
information contained herein is not intended to provide, and it does
not provide, sufficient information to form the basis for an investment
decision, and you should not rely on this information for that purpose.
The information presented herein is accurate only as of its date, and it
was not prepared by a research analyst or other investment
professional. You should seek additional information regarding the
merits and risks of investing in any cryptocurrency before deciding to
purchase or sell any such instruments.
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