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Bitcoin Price Analysis – Large move soon

Volatility continues to grind lower as we approach Q4. The leading bias of any upcoming move, as well as a bullish and bearish roadmap, can be determined using Bollinger Bands, Pitchforks, exponential moving averages, Wyckoff Method, chart patterns, and the Ichimoku Cloud.

Bitcoin (BTC) has continued to experience low volatility over the past two weeks. The market cap stands at US$113 billion, with US$1.73 billion traded in the past 24 hours. Large cap coins have held little to no price correlation over the past month.

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BTC dominance, which measures BTC’s market cap against the total crypto market cap, nearly reached 60% earlier this month but has begun to decline rapidly. While view BTC dominance as a barometer for the success of BTC, others view the metric as heavily diluted and useless.

BTC dominance first dropped below 80% in early 2017, amidst the rise of Ethereum and concerns around bitcoin scaling. BTC dominance dropped further in 2018 with the boom in ICOs, which increased BTC competition dramatically, and seemingly out of thin air.

Declines in BTC dominance have historically correlated with a broader crypto bull market, which suggests that investors seeking safe haven had parked their funds in BTC before regaining the confidence to speculate on the wider market.

Pending BTC ETF fever and subsequent SEC announcements have also had a significant impact on price, and are also likely playing a role in BTC investor confidence. The most recent VanEck/SolidX BTC-backed ETF was delayed further by the SEC on September 20th. Meanwhile, a rumored Coinbase and BlackRock ETF may also be in the mix within the next few months.

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The number of BTC transactions per day has slowly increased since April and reached an eight month high over the past week. This key metric has declined significantly for almost all cryptocurrencies throughout the year. The average block size has remained far below the block limit for most of the year as well.

Average transaction costs have declined significantly since December and January. High network volume brought transaction costs to meteoric heights lat last year, but a transaction currently costs around US$0.76. The transaction cost reduction can be broadly attributed to the decline in the price of Bitcoin and the decline in total transactions per day. At the same time, a dramatic decline in unconfirmed transactions, Transaction Batching, SegWit usage, and use of the Lightning Network have all contributed to less network traffic.

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Over the past year, the average USD transaction volume per day has dropped across all coins, although BTC remains far above the pack. ETH has the second highest USD transaction volume per day. The mean transaction value for BTC sits around US$3,000. For comparison, the average credit card transaction in the U.S. is around US$100.

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The 30-day Kalichkin network value to transactions ratio (NVT) continues to increase and is nearing a new record high. While inflection points in NVT can correlate with extreme highs or lows in price, a rising NVT should be seen as bearish due to decreasing network utility.

However, NVT is difficult to compare between coins that use different transactions types, but the ratio can be used to assess a network’s relative utility over time. Moreover, Kalichkin’s NVT does not account for inflation or the use of off-chain transactions, which would decrease the overall NVT ratio.

Daily active addresses (DAA) have increased since April, but remain significantly lower than the highs in January. A large uptick in DAA should be seen as a bullish indicator of price, as it suggests an increase in demand. There are currently ~29 million user wallets.

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Turning to other key network metrics, the network hash rate and difficulty continue to post record highs, pushing mining profitability toward record lows. Continued increases in difficulty signify more and more hashrate being added to the network. Difficulty, which adjusts every 2016 blocks, has only had eight decreases of more than 1% since 2016, all of which have preceded an increase in BTC value shortly thereafter.

Miners looking to upgrade or re-invest will soon have more options as ASIC manufacturers have announced plans for new miners. Samsung, which had previously worked with Halong Mining, revealed plans to produce mining chips for a Canadian mining firm, Squire. Chinese Ebang Communication has announced an ASIC. Bitmain’s IPO hangs in the balance after a disastrous Q2 2018 and a potentially worse Q3. However, the addition of more hashing power will continue to increase the networks difficulty.

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BTC exchange traded volume over the past 24 hours has been led by the Tether (USDT) and the United States Dollar (USD) markets, mostly on Binance, Bithumb, OKEx, and Bitfinex. Although USDT volume has risen dramatically over the past year, a recent peer-reviewed report found that USDT issuance does not impact BTC price.

In Asia, volume on the Japanese Yen (JPY), Korean Won (KRW), Chinese Yen (CNY) pairs have remained subdued throughout the year. Turkish Lira (TRY) volume continues to increase, likely fueled by falling economic confidence, inflation, and U.S. tariffs. A 2016 study found that "Bitcoin-based exchange rates can be used to identify episodes of capital movement that, due to their transitory nature, current classification systems cannot detect".

The Mt. Gox saga continues with a November 25th letter confirming sales of approximately 24,658 BTC and 25,331 BCH, or US$230 million, between March 7th and the June 22nd this year. The remaining funds are set to be distributed to previous Mt. Gox users around February 14th, 2019. The deadline for submitting a rehabilitation claim is October 22nd.

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Global over the counter (OTC) volume, from, continues to underwhelm when compared to recent highs. The biggest increases in notional value globally have come from South American countries including; Argentina, Chile, Colombia, Peru, and Venezuela. These notional increases are likely fueled by inflation in Argentina and hyperinflation in Venezuela. OTC volume has also increased in Iran since the resumption of U.S. sanctions, which have encouraged the use of alternative forms of payment for international transactions.

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Source: Coin.Dance

Google Trends for the term "bitcoin" remain down sharply over the course of the year. A slow rise in searches for "bitcoin" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and bitcoin price. A May 2017 study concluded that when the U.S. Google "bitcoin" searches increase dramatically, bitcoin price drops.

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Technical Analysis

Volatility continues to grind lower as we approach Q4. The leading bias of any upcoming move, as well as a bullish and bearish roadmap, can be determined using Bollinger Bands, Pitchforks, exponential moving averages, Wyckoff Method, chart patterns, and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the weekly chart, Bollinger Bands (BBands) are tight and showing a bearish bias, suggesting further downside. BBands measure volatility and attempt to predict the direction of price action as consolidation is occurring. If a break out occurs while price is below the 20SMA (red), the indicator suggests bearish continuation. The BBands expand with volatility, after the move has happened. Historically, BBands have only been this tight three times, all of which resulted in bullish continuation (not shown).

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Long/short open interest on Bitfinex is currently net short, although shorts have decreased recently. Total open interest is near record highs suggest that a substantial price move in either direction will be exaggerated by margin positions closing. However, BTC funding rates are relatively low, suggesting that there are ample coins available to borrow for leveraged trading.

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Price remains in the bottom of the median channel in the upward trending pitchfork which started in 2015, with anchor points in January, May, and August of that year. Price will continually attempt to return to the median line (yellow) throughout any given trend. A price rise above the median line would likely have a maximum upside target of ~US$14,000-US$18,000 by end of year. Price will need to maintain a range of US$4,500-US$6,000 in order for the pitchfork to remain valid. The 50/200EMAs are currently bearishly crossed, but may form a bullish Golden Cross in the coming weeks, which suggests further upside.

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The Wyckoff Method can be used to help determine where price sits within a cyclically repeating pattern. Price structure on the daily chart continues to correlate highly with a typical Wyckoff Accumulation phase. An accumulation phase occurs before a new markup phase. BTC experienced one of these classic accumulation periods throughout 2015. A successful accumulation period would be highly indicative of a prolonged bull trend with another accumulation period around the yearly pivot at US$11,000.

Price also sits within a large Falling Wedge, making successive lower highs and lower lows. This pattern can represent a bullish reversal pattern, and typically resolves when 75% full, experiencing a more explosive move when 80% complete. Using Bulkowski’s measure rule, a bullish target of US$11,000 and a bearish target of US$4,200 are projected. There are no active bearish RSI divergences on the daily timeframe as RSI has begun to coil with price.

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Alternatively, price may have formed a Descending Triangle, which holds a bearish bias if the pattern forms following a downtrend. As with all triangles, a breakout is expected when the pattern is at least 75% full, experiencing a more explosive move when 80% complete, which is currently the case. Using Bulkowski’s measure rule, a bullish target of US$13,000 and a bearish target of US$1,880 are projected. The 1.618 fib extension of the triangle width paints a bullish target of US$16,729 and a bearish target of US$2,079.

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On the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

On the daily chart, the Cloud metrics are bearish to neutral; price below the Cloud, Cloud is bearish, the TK cross is bearish, and Lagging Span is below price and below Cloud. A long entry based on traditional Cloud strategy would not be warranted until price breaches the Cloud. The long flat Kijun at US$7,865 represents a magnet for price. The Cloud continues to thin, suggesting an opportunity for a bullish Kumo twist and bullish Kumo breakout within the next few months.

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Lastly, the opening and expiration dates of the Chicago Mercantile Exchange (CME) BTC futures contracts typically have a significant impact on price. The CME facilitates trading in the largest portion of derivatives contracts in the world. The most recent September 4th contract opened at almost exactly the top of the current price range. A six month contract is set to close on September 28th with a new Q4 contract opening on October 1st, which may provide a substantial increase in volume.

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BTC fundamentals show a slow but steady uptick in transactions per day, while the average value of transactions has declined slightly. NVT continues to rise, suggesting the market cap is not supported by the utility of the blockchain, although DAA has begun to increase. Hash rate continues to increase without signs of stopping as more and more ASIC producers join the foray. Bitmain, the once mighty world leader in ASIC production, has and will experience a continual chipping away of market share as their IPO remains in limbo.

Technicals, including historical volatility and price action, suggest at least a 50% move over the next three months. Overall, indicators lean bearish to neutral over this time period. Key indicators for bullish price action include price above the; upper BBand, multi-month diagonal resistance of both triangle chart patterns, multi-year bullish pitchfork median line, daily 200EMA, and/or daily Cloud. Key indicators for bearish price action are much simpler, closing below the lower BBand and US$5,800-US$6,000 zone would likely result in bearish follow-through towards US$3,000.


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