Bitcoin Price Analysis – Interim top is likely

Bitcoin (BTC) has exploded over the past week, smashing through the previous all time high of US$8300, and breaching US$9000 in only 9 days. The market cap now stands at US$161 billion, with over US$4.2 billion traded in the last 24 hours. The heavy buying occurs in the setting of a few key events and metrics; mainstream adoption, institutional investment, and continued fork dividends/airdrops.

Coinbase recently reported that it has 13.3 million users, up from 5.5 million in January this year. The site now has more users than the stock brokerage Charles Schwab and allows for instant buys up to $25,000 using a credit card. Purchasing limits can be raised substantially after providing full identification information for KYC/AML purposes.

For the institutional investor, a cash-settled Bitcoin futures product is coming to the Chicago Mercantile Exchange (CME). The product is slated to launch on December 11th. While it’s no bitcoin-backed ETF, which would be plugged directly into the market through various exchanges, the CME futures product represents increased legitimacy for Bitcoin and a way to gain Bitcoin exposure without custodial risk or security concerns. However, the future will have soft and hard limits on volatility which may be a problem for the product considering Bitcoin’s history of volatility.

A recent spate of high profile forks have provided BTC holders with a variety of new cryptocurrency holdings. While forks are an integral part of open source software development, several projects have contentiously adopted the bitcoin brand. Recent forks include Bitcoin Cash on August 1st, Bitcoin Gold on October 24th, and Bitcoin Diamond with Super Bitcoin in the near future on block 498888.

Bitfinex is under scrutiny over its use of Tether (USD₮). The exchange’s API reports that 64,440BTC in trading has been facilitated over the past 24 hours, which is near ~50% of global BTC/USD trades. However, the exchange uses a centralized cryptocurrency pegged to the US Dollar.

According to their website “every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.” 725 million USD₮ has been created thus far. A recent audit, on September 28th, by Friedman LLP shows US$443 million in reserves. However, the legitimacy of the audit has also been questioned, due to the name of a new bank having been redacted from the document.

On November 19th, Tether announced that ~31 million USD₮ had been stolen from the network. The company was able to immediately blacklist the address and prevent the Tether from being used on any exchange. Tether then forked to recover the stolen funds. This mitigation process occurred swiftly due to Tether’s centralized and managed nature.

With the help of SegWit addresses, Bitcoin hit a new all time high for total transactions per day, processing 370,918 on November 21st. SegWit effectively increases block size to above 2MB. Blocks are currently averaging ~1.2MB.

Despite the explosive growth of users on Coinbase, the company has yet to adopt SegWit addresses, which many users wish to use for cheaper transactions. SegWit makes all transactions cheaper than a similar non-SegWit transaction because it effectively reduces the size of the transaction in the block. SegWit adoption currently stands at around 11%.

Hashrate and difficulty have remained stable since the Bitcoin Cash mining profitability flip, which pulled 6 exahashes of hashing power. Bitcoin Difficulty was reduced on both of the last two adjustments, which has kept block times around 10 minutes.

Halong Mining announced a new ASIC miner promising the best efficiency currently available and will ship in March 2018. A successful launch would bring some much needed diversity to the ASIC manufacturing market, which is lead by Chinese manufacturer Bitmain.

Over the last 24 hours, global trading volume has exceeded US$4.2 billion, being led by the US Dollar (USD) and the Japanese Yen (JPY) on Bitfinex and Coincheck respectively. The South Korean Won (KRW) holds a significant premium over the USD and JPY pairs, suggesting difficulty arbitraging the difference on the South Korean exchanges.

Technical Analysis

After a week of consolidation around US$8000, bitcoin quickly broke resistance from a multi-month rising wedge, which typically retraces 50%. This pattern is now invalidated.

However, the bearish three drives is currently in a short accumulation zone, which will continue until a price above the 1.272 fib extension, US$10,450, is reached. This pattern yields a pullback target around the 50% retracement as well, US$4650.

On the daily chart, the Ichimoku Cloud continues to show bullish metrics after the Kijun bounce on November 12th. There are no signals suggesting a long entry on this timeframe, but the Cloud does suggest a very strong trend with elongated continuation.

On the four hour chart, the Ichimoku Cloud has continued to show bullish signs since the Kumo breakout on November 15th. The 1.618 fib extension of the previous move at US$9329 has been surpassed, and is again growing the TK disequilibrium. A pullback to US$8600 is possible based on Kijun support.

The Pitchfork, which uses three anchor points to predict a price channel with diagonal potential reversal zones, also shows the expected bounce from the median line (red) support. Price continues to move through the upper diagonal channel with upper-limit resistance nearing quickly. Based on the trend, resistance here should be expected, creating an interim top. A strong breakout above this diagonal resistance will indicate the beginning of a faster moving trend.

Lastly, the OKEX quarterly futures rollover date is ~22 days away. The rollover has had an alternating top/bottom price pattern between contract expirations since 2015. Based on this pattern, the top for the quarter will likely occur around December 17th.

Conclusion

Fundamentals for user awareness and adoption have reached new heights. Both the casual and institutional investors are taking a serious look at Bitcoin as a legitimate financial tool. Network metrics suggest a complete recovery from a temporary dramatic loss of hashrate.

Technicals, including Pitchfork and the Bearish Three Drives, suggest an interim top is likely, despite the glowing fundamentals. There is strong evidence that a top for the quarter around mid December is very likely. If price reaches above US$10,500 on strong volume, these concerns disappear.