Bitcoin, the “people’s currency,” passed a big “chart” test overnight. It crossed the $5000 mark, reaching an all-time high, without China.
Other cryptocurrencies followed suit. Ethereum also gained 1.65%, while Litecoin gained 4.93%
|Coin||% 24H||% 7d|
*As of Thursday October 12, 2017 at 9.30 am
That should be a big relief to cryptocurrency investors, especially to those who purchased at high prices, before China shut down Initial Coin Offerings (ICO).
Why is the “chart” test so important? The digital currency must overcome the barrier of the $5,000-mark, which it crossed once again before pulling back toward the $3,000-mark. Milestone numbers are important for traders following price and volume charts, as they confirm/reject market momentum.
In this case, it confirms that the worst is over for Bitcoin, and that the digital currency can rally above $5000, even as big governments–like the Chinese government–go against it.
That’s certainly good news for Bitcoin bulls as the Bitcoin bubble could grow bigger and a lot faster than in the last six months before it goes bust. Investor sentiment will shift from fear of losing out to fear of missing out.
Fear of missing out is an “emotional button” that is usually turned on in bull markets, as investors score a string of quick gains — transforming the bull market into a bubble, which fuels euphoria that feeds into greed.
Investor euphoria is usually boosted by mental accounting, as investors end up chasing one class of assets (rather than diversifying) and end up buying when valuations are high. That was the case in the high-tech bubble of the late 1990s. Investors who invested in the technology-heavy NASDAQ during the high-tech bubble of the late 1990s- early 2000s made big gains as the bubble blew, but lost a lot of money as the bubble burst in the early 2000s.
Will history repeat itself with cryptocurrencies? It remains to be seen.
By Panos Mourdoukoutas