Bitcoin Price Analysis – Retest before push higher

Bitcoin continues to recover from the 40% decline which occurred throughout the month of September and now holds a market cap of US$72 billion.

SegWit2x was part of the New York Agreement which aimed to increase block size to 2MB and enable SegWit transactions. Jeff Garzik and the BTC1 team has a month to complete the project before the November 1st deadline.

Although currently supported by none of the Bitcoin Core developers, if successful, this would be the second major fork for Bitcoin this year. Considering hash rate is essentially a zero sum game, it remains to be seen which miners will support which chain, or if miners will switch between whichever chain is most profitable at the time.

Bitflyer and Gdax have signed the agreement while other exchanges; Bittrex, Bitfinex, Bithumb, Coinone, HitBTC, Binance, Poloniex, Kraken have not signed the agreement.

As both ledgers would be identical after the fork, between Bitcoin and SegWit2x Bitcoin, there are serious concerns for replay attacks, which can occur on purpose or by accident. A replay attack occurs when a transaction from one chain is sent to another chain or vice versa.

This can be avoided through replay protection, enabled by either Bitcoin or SegWit2x Bitcoin, but considering the fork is the newer protocol, it would be much easier for SegWit2x Bitcoin to enable this change.

Meanwhile, SegWit transactions per block on Bitcoin continue to rise, now at 7%, up from 3.5% last week. These transactions enable bigger blocks above 2MB, beyond the previous 1MB ceiling. They also use fewer bytes per block than legacy transactions making SegWit transactions cheaper.

Bitcoin hashrate and difficulty continues to rise. Difficulty is up 131% since the beginning of the year. The most recent adjustment on September 18th was the largest since February 2016.

Japan and other Southeast Asian countries have seen a marked increase in interest and volume for cryptocurrency since the regulatory onslaught from China. Regulatory influence is now led by Japan, the United States, and South Korea simply based on top traded volume. Expect a response to price based on any unfriendly or friendly regulation from any of those countries.

Exchange traded volume has been led by Japanese Yen (JPY) markets over the past 24 hours, with most of that volume coming from Coincheck, which has 0% trading fees. The Chinese Yuan (CNY), once the market leader in volume, will remain lethargic until exchanges re-open sometime in the future.

OKEX, China’s leading crypto exchange, announced that user accounts were recently hacked for ~600BTC, only adding to China exchange woes. These accounts were likely compromised because they were not using two-factor authentication, based on reports.

South Korea recently announced a ban on ICOs and markets responded as expected, dropping slightly when the news was widely known. Japan’s Financial Services Agency has also approved 11 different cryptocurrency exchanges and money transmitters with 17 more pending.

Bitflyer, one of the largest Japanese exchanges, will be expanding to the US before 2018. The more exchanges available for everyone in each country, the better. Healthy competition ensures an improved customer experience. Look no further than Poloniex and Bittrex as examples in the alt coin world.

Global over-the-counter (OTC) volume has pulled back slightly from highs but many countries including Chile, China, Columbia, India, Malaysia, New Zealand, Poland, Singapore, Switzerland, Thailand, and the United Arab Emirates made new highs in volume this week.

Chinese OTC volume continues to rise. Expect this to continue so long as the exchanges remain shuttered. Also, expect the Chinese government to realize where the volume is going and attempt to close LocalBitcoins in that region through an IP ban or otherwise. The harsh regulatory environment in China is a shining example of the need for a fully decentralized cryptocurrency exchange that cannot be shut down by government action, such as the DEX.

Technical Analysis

The first step of any analysis should always be trend determination on high timeframes.

A new monthly candle just closed as a hanging man, suggesting a possible reversal of trend. It’s important to note that candlestick patterns do not confirm until at least the next candle, so November 1st. The reversal would confirm if there is a failure to breach new highs for the remaining 30 days. This candle and reversal have occurred three times prior on the monthly time frame.

RSI, a measure of momentum, is also heavily in overbought territory. RSI can easily trend in oversold territory for over a year, as it did in 2012 and 2013. Fundamentals now are certainly much different than they were in 2013 and 2014, which could easily propel this bull run for many more months.

On the daily chart, using Ichimoku Cloud, the trend remains heavily bullish with price above the cloud and a bullish future cloud. The TK cross remains bearish despite the price being above Kijun. This has occurred on the prior three price recoveries, each time price returned to at or near the Kijun before moving much higher. Bids on the Kijun or waiting for the bullish TK cross would be two long entry signals based on the Cloud.

On the four hour, the Kumo breakout around US$3900 has proven to be an excellent long entry signal. Kumo breakouts occur when a candle closed either above Cloud resistance or below Cloud support suggesting a confirmed trend reversal. Although this misses the previous US$1000 bounce, it is a high probability entry signal.

The TK lines are also showing a disequilibrium, meaning there is a significant spread between both lines. When this occurs, it suggests overbought or oversold conditions, overbought in this case. It is likely that price will attempt to breakdown and reach for the Kijun before moving higher. This may seem extremely unlikely as price is attempting to break US$4400, but I never doubt the Cloud.

EMAs on the four hour suggest a bullish reversal as well, with a 50/200 cross. Both of the most recent bullish 50/200EMA crosses on the four hour were preceded by a bullish reversal chart pattern. A test of the 200EMA to confirm support occurred after the reversal on the last bull run. I expect a similar test for this bull run as well.

The Adam and Eve bullish reversal chart pattern on the four hour remains on track for the projected target for US$4500-4770. The long entry occurred on the break of the horizontal resistance which was also essentially the 200EMA. As with any chart pattern, there was a descending volume profile and a return to confirm support before moving higher.

Because the Adam and Eve chart pattern has yet to break the descending volume profile, there is a possibility of a building Rising Wedge, a reversal chart pattern. Wedges and triangles in general tend to break when at least 3/4 completed. Targets are always at least 50% of the wedge or triangle, in this case US$3730.

Despite Rising Wedges traditionally signifying reversals in legacy markets, many of the past rising wedges in the large cap cryptocurrencies have not completed as expected and instead kept rising.

Lastly, we have moved through the OKEX quarterly futures rollover dates, which since 2015 have had an alternating top/bottom price pattern between contract expirations. Based on this pattern, the bottom is likely in for the quarter with new all time highs expected around December 17th.

Conclusion

Bitcoin awareness around the world is probably the highest it’s ever been, especially among those in the financial sector. With another pending hard fork, SegWit2x, awareness will only grow due to the drama narrative commonly peddled in the media. With the Chinese government turning it’s back on much of the cryptocurrency community at the moment, use and approval in Southeast Asia continues to grow.

The potential of a monthly reversal confirmation looms prior to the SegWit2x hard fork release. Technicals also suggest price is overextended at the current level on lower timeframes. Previous reversals from significant pullbacks in the current trend also suggest a retest of support, US$3700-3900, before moving higher. Based on the cyclical nature of price since 2015, a new all time high is highly likely before 2018.