Bitcoin Price Analysis – PBoC continues to sway markets

On February 9th, OKCoin announced a suspension of bitcoin and litecoin withdrawals. The announcement indicates that the People’s Bank of China (PBoC) has requested the exchange address Anti Money Laundering (AML) compliance.

The chinese exchange will spend the next 30 days updating their systems, after which bitcoin and litecoin withdrawals will be permitted. Clients holding Renminbi (CNY) balances can withdraw their funds at any time.

At this point, any announcement between the PBoC and Bitcoin exchanges continues to hold bearish sentiment, although the overall impact on Bitcoin itself is negligible. Chinese trading volume is already a fraction of what it once was, largely due to previously inflated numbers. However, Bitcoin’s relatively small market cap means that even a small splash sends ripple across the globe. Events such as these can trigger enough fear, uncertainty, and doubt for emotional selling worldwide.

The OKCoin announcement is expected to precede similar announcements from other chinese exchanges. The announcement appears to be the result of a meeting known to a select group of traders, and reported by Bloomberg at 02:51 GMT-5. The price of bitcoin price fell a few minutes later.

Mainstream media coverage of Bitcoin is typically bullish as it increases exposure and creates curiosity amongst the general public, including the Forex community. Increased reporting in traditional financial channels indicates that the wider trading industry is warming to Bitcoin.

Japan also has some upcoming regulation, a pending bill to allow Bitcoin as a form of payment, set to become law in April. This also increases exposure, curiosity, and use cases for Bitcoin throughout the world.

There has been an increase in chatter regarding US regulation this week, as the SEC decision regarding the COIN ETF moves closer. A new amendment to the ETF was filed to the SEC. Virtu, one of the largest high frequency trading firms, is now listed as a market participant.

Meanwhile, SegWit signalling continues to hover at 25%, unchanged. Once miners, most of whom are located in China, feel that there is a reason to change the protocol, they will. In the meantime, Hash rate and difficulty continues to increase, having repeatedly broken previous all time high’s, which signals strong network health.

Long Term Technical Analysis

Longer timeframes always provide the overall trend, while using Ichimoku Cloud, four key indicators can offer more detail. As long as the price remains above the cloud, sentiment remains bullish. When the Tenkan (T) is over the Kijun (K) sentiment is bullish. When the Lagging Span (LS) is above the cloud and above the price sentiment is bullish.

A bullish TK cross occurred on the daily timeframe this week, which is typically an extremely bullish continuation signal based on the Ichimoku Cloud system, but in Bitcoin’s history, probability would dictate consolidation over new highs.

While the price remains above the Cloud and Kijun, the slope of both the kijun and the cloud echos momentum. Both are currently flat, which signals a bullish leaning trend, but not with momentum or strength.

There was also a confirmation of resistance at the Pitchfork median line. Expect continued consolidation in this quartile until bullish momentum presents itself, and breaks the median line diagonal resistance.

The price falling into the lowest quartile is a strong buy signal, for those convinced that the price will remain bullish long term, which based on fundamentals, will likely be the case.

The bullish re-entry signal on the daily timeframe occurred when price hit the Kijun. This is known as the Kijun Bounce, which typically sits at the 50% fibonacci retracement level. Bids in a bullish market, or asks in a bearish market, at this level are always considered safe and to some degree, medium to high probability, no matter how outlandish it may seem at the time.

For a bearish entry, look for a candle close on the daily timeframe in the cloud with an expectation of a touch of the other side of the cloud.

This is known as the Kumo Edge to Edge trade. The larger the cloud, the bigger the expected move. There was a similar Kumo Edge to Edge setup preceding the Bitfinex hack.

The most profitable Kumo Edge to Edge trade in Bitcoin’s history occurred on a weekly timeframe, beginning in October 2015 and completing on June 2016.

The reason this works is because the cloud prints dynamic support/resistance. A candle close in the cloud signals a break of support/resistance which the next support/resistance being the other end of the cloud.

Medium Term Technical Analysis

The Ichimoku Cloud system has a built in oversold/overbought indications based on the distance between the TK lines.

At their peak, there was a 5% spread between TK lines. This is known as a C-Clamp or TK disequilibrium signalling reversal or consolidation is more likely than further bullish movement.

This TK disequilibrium coupled with a touch of the potential reversal zones, pitchfork median line, and 76.4% fibonacci retracement level of the previous move, meant that there was enough technical evidence for a breakdown. The PBoC meeting was just more fuel for the bear fire.

Additionally, the Inverted Head and Shoulders measured move gave a price projection of ~$1081. The price reached $1075 before reversal, matching the confluence of resistance.

For bullish re-entry on the four hour, look for price above cloud and a bullish TK recross, assuming the bearish TK cross will occur within the next few candles. For a bearish entry, watch for a candle close below cloud, also known as the Kumo Breakout, with a bearish TK.

Short Term Technical Analysis

Whenever a large move in price occurs, move to a low timeframe, and use the fibonacci retracement tool**.**

Based on Dow Theory, you can reasonably expect any large movement in price to retrace 50%. A bullish move would create resistance at 50% and a bearish move would create support at 50%. As structure plays out, you can also look for chart patterns such as double top/bottom or head and shoulders, which signal reversal, or flags or channels, which signal continuation. You will often notice both a flag and a double bottom, as is currently the case.

Drawing the flag will give you an approximate zone to watch for as consolidation continues. This is typically a ‘wait and see’ instigator on smaller timeframes. Bollinger Bands will also help determine which direction price will move, but should be used with caution on lower timeframes as signals can be less clear and convincing. Volume will confirm the signals on the flag or Bollinger Bands.

Conclusion

The omnipresent PBoC will continue to impact price, likely in a bearish manner. Bearish Technicals or weakening Bullish Momentum aligning with these meetings means large dumps will be afoot. Overall, long term trend remains strongly bullish will no threat to Bitcoin protocol. Miners continue to add hash rate week over week signalling strength in Bitcoin’s medium and long term future. Technicals are leaning bullish with a strong possibility of extended consolidation.