Bitcoin Price Analysis – PBoC effect diminishing

Repeated People’s Bank of China (PBoC) announcements and meetings with Chinese exchanges has been a large bearish driving force over the past month.

On January 6th there was also a tightening of capital controls via regulations, which directly affected Bitcoin traders, and an increase in the offshore Renminbi trading rate, the “most in more than a decade.” Fortunately for Bitcoin bulls, the consecutive PBoC announcements and meetings have had decreasingly bearishness, with resulting price drops of 23%, 18%, and 12% in bitcoin markets. Any further PBoC announcements in the near term would need to be substantial to instigate a large drop. The volume on CNY exchanges is now dramatically less than it has been in the past three months, as the PBoC is enforcing Forex rules for the domestic bitcoin exchanges, which removes the incentive to create volume.

In the Us, speculation on the March 11th SEC decision regarding the Winklevii Bitcoin ETF (COIN) has reached a fever pitch. Numerous articles around the web have been predicting both approval and denial on the decision date. In a recent report by Needham & Company, a “very-low” probability of ETF approval was predicted, while the report also suggested the ETF may attract $300 million in the first week if approved. This is of course extremely relevant to near and long term bitcoin price, but perhaps less so in the long term. Even if the COIN ETF never gets approved by the SEC, one or more ETFs will get approved by a financial regulatory agency eventually, whether it be Hong Kong, London, or another financial hub.

Technical Analysis

While longer timeframes always provide the overall trend, the Ichimoku Cloud indicator provides four key indicators that 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. Currently, on the weekly, daily, and four hour timeframes, all indicators are bullish. Needless to say, this gives a very bullish outlook in the immediate future.

One Week Ichimoku Cloud

One Day Ichimoku Cloud

Four Hour Ichimoku Cloud

The Ichimoku signals on the daily and four hour timeframes recently turned bullish, suggesting an excellent entry. A trading plan should always include bullish and bearish targets. Should price drop significantly, $720 is a hard support target based on weekly Kijun. There is also an opportunity for bearish Kumo edge to Edge trade based on the daily cloud, between $961 to $887.

The Ichimoku Cloud is excellent at determining entries and exits but not so useful for predicting targets in the current trend. Further indicators, such as Fibonacci Extensions and Pitchfork, can add detail.

Fibonacci zones can be drawn from the extreme high to the extreme low for any price movement. Within this price range, static support/resistance lines are drawn, and can be thought of as Potential Reversal Zones (PRZ) for price. These are levels that traders often use to open or close trades, making them more consistent. Fibonacci retracements also include Fibonacci Extensions which give additional support/resistance above or below the extreme high to an extreme low of any price movement, the 1.618 fibonacci extension being the most widely used.

In the previous ascending triangle consolidation, resistance for the resolution of the next upward move was drawn 200 days before the move occurred

Using this same logic, a price projection of $1500 is viable using the 1.618 fibonacci extension from the extreme low to the previous high

A simple way to determine if an asset’s price is overbought or oversold within a trend is whether or not there is deviation from the mean of the trend. One way this can be done is by adding a Pitchfork, with an anchor at the low in the trend and another high and low in the trend. The mean of the trend being the Pitchfork Median Line (ML).

The ML acts as a high probability magnet for price, where it will either accumulate, zoom through, or bounce off. This may sound both unhelpful and convoluted, but essentially the ML can be thought of as a PRZ, similar to that of Fibonacci Retracement levels.

Each diagonal of the Pitchfork can be thought of as a PRZ or support/resistance line. The upper blue diagonal zone being ‘most overbought,’ or the top bounds of the trend, and lower blue diagonal zone being ‘most oversold,’ or the bottom bounds of the trend.

A Pitchfork can be drawn on any timeframe and can be drawn multiple times over a given trend. This leaves us with one pitchfork encapsulating the entirety of the trend as well as other Pitchforks within the given trend.

One Week Pitchfork – High probability of $1200 based on the ML, with an absolute cap of ~$1900 in the immediate future, based on the upper limit of the Pitchfork

One Day Pitchfork – High probability of $1180 based on the ML, with an absolute cap of ~$1500 in the immediate future, based on the upper limit of the Pitchfork

Four Hour Pitchfork

A Pitchfork drawn on a higher timeframe is useful on a lower timeframe. They can be used to enforce the validity of support and resistance diagonals. Multiple touches of each can be used to gauge how well the Pitchfork is, or is not, being respected. The most recently drawn Pitchfork appears well respected, with convincing zones of support and resistance.

There are many other common chart patterns traders use as signals of continuation or reversal of trend. Two active patterns include the Inverted Head and Shoulders, currently forming on the weekly chart, and a Cup and Handle, on the daily chart.

Both have measured targets from resistance to an extreme low, which is projected upwards once resistance is broken. The measured target of the Inverted Head and Shoulders is $1440 and the measured target of the Cup and Handle is $1580.

Conclusion

With the effects of PBoC announcements weakening, possible COIN ETF approval on March 11th, and technicals leaning extremely bullish, price projections between $1440-1580 may soon become a reality.