Why I'm Taking Bitcoin Profits Amid Potential Price Resistance

Tuur Demeester is an independent investor, newsletter writer and editor in chief at Adamant Research. Launched in 2015, Adamant Research provides a monthly newsletter service.

In this opinion piece, Demeester discusses his latest bitcoin trades and why he's not conviced the price is poised to rally higher.

The bitcoin price has more than doubled since I first published the report "How to Position for the Rally in Bitcoin" little over a year ago.

It's been a great run, and I think there is a lot of potential left on the upside, but nothing goes up in a straight line and we are faced with a potential price resistance zone at $700-800.

Here's how I see it: in the chart above, the straight line is simply the $700– ¥4,000 price resistance (a potential price target for traders), and the slanted line is the resistance above a cup-and-handle continuation pattern that's been forming for the past two years.

Since the price went above $700, I've been selling some bitcoins, some more even today, to lock in profit and give myself some more ammo to buy back if prices drop. On the downside, I see support at the $600 and $450 levels.

That being said, the cup-and-handle pattern is a huge deal in my view, and if we break out of it, it could catapult the price well over the previous all-time high – perhaps to $1,600 in short order.

For your consideration, the chart below shows the bitcoin price in Chinese yuan. Because of the 10% devaluation versus the dollar, the price has already breached both the¥4,000 and ¥5,000 resistance, big question is now if it can break out of that completed cup and handle pattern:

I remember telling myself to be cautious with my optimism when bitcoin rallied to $30 in early 2013 – because that was the previous all-time high – only to see the price consequently rally up to $260 in a matter of weeks.

Since that time, however, bitcoin has matured from a tiny startup currency to the equivalent of a mid-cap S&P 400 stock, making explosive price moves a bit less likely, and currently we're also facing some scalability bottlenecks.

Bitcoin transaction fees have increased to at times over $0.15 per transaction, and it'll possibly take another six months to activate on-chain and second layer volume capacity, allowing for lower costs.

For the time being, exchanges and other startups are processing millions of off-chain bitcoin transactions per day at very low fees (the trade-off is that this is less secure), which I think shows that the ecosystem is very dynamic.

Nonetheless, the hurdles towards secure decentralized scalability are real in my view and so could depress investors' sentiment somewhat in the coming weeks and months.

In sum, even though I think we could see a pullback in the short to medium term, I'm optimistic on the prospects of bitcoin for 2017, and I'm still expecting the price to approach or exceed the 2014 all-time highs.

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Money grab image via Shutterstock

This article is not intended to provide, and should not be taken as, investment advice. Please conduct your own extensive research before investing or trading.