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Bitcoin Price Analysis: Year in Review

As 2015 comes to an end, this will most likely go down as the year Financial institutions discovered Blockchains.

As 2015 comes to an end, this will most likely go down as the year Financial institutions discovered Blockchains. In last month’s article I expressed my opinion that there is still a misunderstanding regarding the revolutionary aspects of this technology, as the banks are looking to implement Private Blockchains.

Saving costs, speeding up transactions and the sharing of information between trusted parties appear to be the main drivers behind these initiatives. Alongside these issues, banks today are also burdened by costly regulatory compliance.

The concept of regulatory compliance can be examined from two sides. First we have the consumer protection side, which attempts to ensure that financial institutions maintain proper operations and avoid practices like risky lending, speculative trading with customer funds, or just running off with customer money.

The success of this oversight is a separate discussion, but it’s hard to disagree with the need for it. Perhaps there are ways to utilize the latest database technology in this endeavour, while at the same time speeding up the transfer of asset ownership.

Of course regulators still need to be convinced that the latest technology adds security over the current solutions, and reporting processes will also need to be changed. Until this happens, there may not be much of an advantage over the cost of the current systems.

We also have to keep in mind that we already have global systems that understand transactions well, like SWIFT, and those that understand data storage well, like Oracle. It would appear that Permissioned Ledgers are attempting to combine the best of both. This is now the battleground for numerous projects, of which R3CeV seems to be getting the most attention.

The second aspect to regulation is regulating the consumer. This takes the form of Know Your Customer (KYC) and Anti-Money Laundering (AML) oversight. These initiatives have led to legislation like the Foreign Account Tax Compliance Act (FATCA), which is making it difficult for citizens of the number one economy in the world to open foreign bank accounts.

The economic historian Martin Armstrong makes a case that the world economy is slowing down due to regulation on Money itself, and the constant hunt for taxes, with cash being the number one enemy. Unlike the unanimous cry for consumer protection regulation, there is at least some debate over the regulation of money.

I find that the economic and technological genius of Bitcoin is in creating significant problems for regulators in the KYC/AML side of the equation. The system is clearly not perfect, with transactions being only semi-anonymous, and everyone will agree that we still have a long way to go on the consumer protection end – securing bitcoins is not an easy task.

What has been proven over the last 5 years, however, is that Bitcoin remains very useful for those under-serviced by the current financial system, and has massive potential in Regulatory Arbitrage.

I’m of the opinion that regulatory arbitrage is actually the primary use case for bitcoin. Permissioned Ledgers within the walled gardens of financial institutions have absolutely nothing to do with Bitcoin as it does not provide any Regulatory Arbitrage. It’s debatable if it even utilizes the underlying Blockchain technology, which is there just to secure the bitcoins.

Not all hope is lost of course, as recent reports out of the IMF indicate that politics will rise beyond sound economics, as countries like Russia and China are being threatened with removal from transaction facilitators like SWIFT. I have written on several occasions that it will be the people utilizing Regulatory Arbitrage to move their capital across borders, but perhaps we may see some utilization from these major under-serviced countries as well.

Market Outlook

The mass-adoption dreams remain the same as before. It’s hard to convince anyone that Bitcoin is better than their local currency, and most of the time it’s not. Each person needs to realize it for themselves and for those that start to consider bitcoins as their most optimal option in their transactions, they will learn it quickly and efficiently.

Right now that remains a small part of the global society, but based on LocalBitcoins volume we have been on a steady increase over the last few years. In places like Russia, that increase in adoption has been significantly more pronounced in recent months. However, there is no indication that mass-adoption is around the corner, so the recent price swing are most likely the results of speculators and traders.

LiquidIndex DailyDec22

Looking at the chart above, displaying the BNC Liquid Index (BLX), we can see that after struggling to break above $475 resistance we have fallen a bit to under $450. Overall, the price remains in overbought territory and the momentum indicators like the RSI display this pretty well. Over the last year the RSI has been consistently swinging from overbought (above 70 circled Red) to oversold (below 30 circled Green).

For longer term traders simply buying and selling based on this indicator would have served you well leading up to the current run up in prices to $500. At the moment we are coming off this overbought condition, for the third time in two months, which is similar (though smaller) to a run up in late summer and the reverse situation at the start of the year when we hit the oversold level 3 times in a row.

Traders need to stay consistent and use the tools that have proven, over time, to work for them. At the moment I see the price as being overextended to the upside, and will not be buying until we see this momentum indicator come back down and work off its overbought condition. This can of course happen at any price, but the ideal range for a pull back would be in the $300-350 zone.

LiquidIndex DailyShortDec22

This is another daily chart, but with a slightly different look. It shows a breakout from the Descending Triangle in the non-conventional direction. It also shows how we are extended way above the 200-day Simple Moving Average (SMA). The Fibonacci lines and the 50-day SMA could provide some support, but prices always tend to retract back to the mean. The 200-day SMA is still below $300 level, so if we meet it in the near future it could set up a nice healthy move to new highs.

The more detailed explanations of the Short, Medium and Long-Term outlooks of technical charts are reserved for subscribers to the BraveNewCoin Traders Report. It also breaks down all the relevant weekly news and their influence on Bitcoin’s price and general standing within the financial ecosystem. For traders looking to use the BNC Liquid Index for long term charting, it is available on Trading View, updated Daily.

Final Thoughts

Spending the last few weeks traveling to several Bitcoin events really gives a realistic perspective on the health of the industry. None of the events were more important than the Scaling Bitcoin conference in Hong Kong. During the event a very important Mining discussion took place, and I strongly encourage everyone to watch in its entirety. Being there in person – there were two main takeaways.

First is that miners are in it for strictly financial reasons, so you can throw ideologies out the window. If they are presented with a better opportunity for profits utilizing their hardware they will switch at a moment’s notice. Second is their views on the block size increase. In this matter, they are also not planning to hold to ideologies, and are all willing to go with the concession of other miners as long as the solution is reasonable. They also seem to not want the responsibility of dictating what is in the Core Code, and are hoping that Bitcoin developers can all agree on something they are happy with.

This article was completed on Tuesday December 22st 9:00 pm ET, when the BNC Liquid Index (BLX) was $445

Tone Vays will be speaking at the following upcoming events:
TNABC, Miami, FL Jan 21 – 22
Anarchapulco, Acapulco, MX Feb 18 – 21
Hoftra University, Long Island, NY Mar 3
Blockchain Conference, San Francisco, CA Mar 7
CMU Summit at Carnegie Mellon University, Pittsburgh PA, Apr 10
Inside Bitcoins, NYC Apr 11 – 12

Disclaimer: The price projections above are just the opinions of one trader. It is meant as a guide, or fresh look, to supplement the reader’s personal views on bitcoin. Trading in general (but especially Bitcoin) is incredibly risky and should only be done with capital one can afford to lose. The Author is a trader and does take on small position in the manner suggested in the article.


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