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Bitcoin Price Analysis – Tether remains dominant despite concerns

Despite growing exchange and stablecoin competition, Bitfinex and USDT continue to represent a substantial portion of all cryptocurrency markets.

Bitcoin (BTC) had a fleeting moment of excitement recently as several exchange prices became decoupled. The market cap stands at US$111.99 billion, with US$1.48 billion traded in the past 24 hours.

There has been increasing focus on Tether (USDT) over the past month. The crypto asset debuted on Bitfinex in 2015 as a first-of-it’s-kind stablecoin which allows for frictionless USD transfer between exchanges. The idea being that 1 USDT is backed by US$1.00, which is held in reserve at a bank. These reserves would be frequently audited, and could be cashed out at any time by USDT users.

Before 2017, there was less than US$10 million USDT in circulation. As USDT in circulation began to increase throughout 2017 and 2018, reaching nearly US$3 billion, so has market scrutiny from a growing vocal minority, including academic financial reports and featured articles in The New York Times, The Wall Street Journal, and Bloomberg.

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On June 14th, 2018, a peer-reviewed scientific article released by Wang Chun Wei, a finance lecturer at the University of Queensland, concluded that USDT issuance did not impact BTC price but did impact BTC volume. Stablecoins function as a safe haven from market volatility, and provide a quick exit or entry for market participants. However, a non-peer reviewed report was released by John Griffin on June 25, 2018. Griffin is a finance professor at the University of Texas and suggested that USDT was directly manipulating BTC price.

The main concerns revolve around Tether printing USDT without sufficient reserves. As the USDT in circulation grew, a professional audit never came. However, the accounting firm Friedman LLP released a memo on September 15th, 2017 stating that the Tether Limited bank accounts held ~US$443 million, which matched USDT in circulation at that time. A similar snapshot was taken by Freeh, Sporkin & Sullivan LLP on June 1st, 2018, which found that the Tether Limited bank accounts held ~US$2.545 billion, which exceeded USDT in circulation at that time.

Recently, Cameron Winklevoss of the Gemini exchange, which also released their own stablecoin, GUSD, tweeting; "There is no financial report framework with regard to audit conformity with a stablecoin. So you can’t perform an ‘audit.’ You must instead rely on a 3rd party to attest to whether an assertion (that there is a 1:1 peg) is accurate."

Erik Voorhees, CEO and founder of, also added; "Getting audited as a crypto company is extremely hard…sometimes impossible. The things which ‘constitute proof’ in crypto are ignored/irrelevant to auditors, and the things they often rely on don’t exist or can’t be relied on when combined with crypto."

The bank accounts operated by Tether Limited had been called into question because they were not revealed on the account snapshots. Rumors that were later confirmed by BitMex research suggested that Noble Bank, based in Puerto Rico, had been Tether Limited’s primary bank. Banking data for the calendar year of 2017, released by the Commissioner of Financial Institutions of Puerto Rico, showed deposits had increased US$3.3 billion, suggesting that this may be Tether-related banking activity.

Tether and the major exchange Bitfinex have always had a close relationship, with the same upper level management for each and likely the same banking partnerships. User reports of delayed banking wires out of Bitfinex began in early September, with no word from Bitfinex publicly until October 7th, where they refuted any rumors of banking issues as well as adding that, "stories and allegations currently circulating mentioning an entity called Noble Bank have no impact on our operations, survivability, or solvency."

Meanwhile, Bloomberg had released an article on October 1st stating that Noble Bank was for sale, with an anonymous source suggesting that the bank had lost Bitfinex and Tether as customers. On October 16th, Bitfinex released a more robust fiat depositing system stating that the new system would be, "significantly more durable in the face of sustained attacks by our competition and their supporters."

As this is all unfolding, market confidence in Bitfinex and USDT has continued to wane throughout September and October. USDT has been increasingly sent back to the Bitfinex USDT address and Tether Treasury wallets in large chunks. Currently, over US$916 million sits in the USDT treasury address and US$33 million is held in the Bitfinex USDT address.

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Additionally, one of Bitfinex’s many BTC cold wallet addresses, and the one that held the most BTC on the network in early September, continues to decline. Cold and hot wallet addresses on other exchanges remain less active in comparison.

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The market rate for USDT (left panel, chart below) has declined dramatically and remains just below US$1.00, currently at US$0.9727. Historical USDT market rate has never been especially stable at exactly US$1.00, likely due to trading fees. The market rate of USDT has also fluctuated during times of excessive volatility, all while the 1:1 peg was intact.

Growing concerns regarding the situation have caused some traders to swiftly leave Bitfinex, as can be seen by the premium between Bitfinex and Coinbase (right panel, chart below). The premium nearly reached US$1000 on October 15th, but has begun to decline.

If free-flowing banking wires, which normally take three to five business days to process, have been restored on Bitfinex, as the exchange states, the market rate for USDT should return to US$1 and the USDT pair premiums should decline to US$0 as traders arbitrage the difference. Although, historically there has always been a slight differential between Coinbase and Bitfinex of around +/-US$50.

Anecdotally, many users have already successfully received or sent USD in or out of Bitfinex using banking wires. Several institutional users, including Mike Novogratz, CEO of Galaxy Digital, have also reported successfully cashing out large sums of USDT for USD.

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Turning back toward Bitcoin, the number of BTC transactions per day (line, chart below) has slowly increased since April and reached an eight month high over the past week. Transactions per day have declined throughout the year for all cryptocurrencies and assets, but, BTC is the only coin which has had steadily increasing transactions per day since April.

Average transaction value in USD (fill, chart below) on the other hand has continued to decline since January when it reached US$79,000. A rise in transactions with a decline in average value suggests more transactions of smaller amounts are being sent through the network. Average transaction value will likely increase dramatically as BTC experiences an increase in volatility. Overall, average transaction value remains high historically, matching two previous highs in December 2013 and February 2016.

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The average BTC block size has remained far below the block limit for most of the year. Transaction costs have also declined significantly, matching February 2017 levels. All of this can be partially attributed to the decline in the price of bitcoin, as well as a dramatic decline in unconfirmed transactions, Transaction Batching, SegWit usage, and use of the Lightning Network. Blockstream also recently released a beta version of the Liquid side chain, which offers private, near-instant, off-chain transactions between exchanges.

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The 30-day Kalichkin network value to transactions ratio (NVT) has begun to flatten, sitting near a four year high (line, chart below). 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.

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 (fill, chart below). 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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Other key network metrics include network hash rate and difficulty, which appear to have temporarily plateaued after explosive growth since January. 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.

A potential cause for this correlation is increased or decrease BTC being mined in between difficulty adjustments. As difficulty lags a large uptick in hashrate, block times are decreased slightly, more BTC is mined in that period, and more BTC is potentially sold by miners. The opposite is true if hash rate falls substantially before the next difficulty adjustment.

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BTC exchange traded volume over the past 24 hours has been dominated Tether (USDT) pair with the United States Dollar (USD) markets also leading the pack but representing only a third of USDT volume. Exchanges with the most volume over the past 24 hours include OKEx, Huobi, and HitBTC. In Asia, volume on the Japanese Yen (JPY), Korean Won (KRW), Chinese Yen (CNY) pairs have remained subdued throughout the entire year.

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Global over the counter (OTC) BTC volume, from, has largely remained flat over the course of the year. 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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Technical Analysis

The spot price of Bitcoin continues to move sideways with very little volatility over the past month, which typically suggests a large pending price move. A decision roadmap for the upcoming move can be determined using Bollinger Bands, moving averages, Wyckoff Method, chart patterns, Pitchforks, 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 tightening 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.

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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.

The 50/200EMAs are currently bearishly crossed, with price held near the 50EMA. A bullish Golden Cross in the coming weeks, would be the first 50/200EMA cross since May and suggest further upside. There are no active bearish RSI divergences on the daily timeframe.

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Price structure on the daily chart continues to loosely correlate with a typical Wyckoff Accumulation phase. As port if the Wyckoff Method, identifying this phase can be used to help determine where price sits within a cyclically repeating pattern. 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$10,500 and a bearish target of US$4,100 are projected.

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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 beyond 80% complete, which is currently the case. Using Bulkowski’s measure rule, a bullish target of US$12,559 and a bearish target of US$2,000 are projected. The 1.618 fib extension of the triangle width paints a bullish target of US$17,200 and a bearish target of US$1,295. Yearly pivots at US11,500 and US$3,000 should also be considered as strong support and resistance.

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Price also remains in the bottom third of 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, currently at US$8,580. A price rise above the median line would likely have a maximum upside target of ~US$14,000-US$18,000 by the end of year. Price will need to maintain a range of US$4,800-US$6,000 in order for the pitchfork to remain valid.

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Turning to 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; price is below the Cloud, Cloud is bearish, the TK cross is bearish, and Lagging Span is in 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$7,138 represents a magnet for price. As the Cloud continues to thin, an opportunity for a bullish Kumo twist and bullish Kumo breakout within the next few weeks.

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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 three month contract is set to close on October 26th with a new contract opening on October 29th, which may provide a substantial increase in volume.

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Despite growing exchange and stablecoin competition, Bitfinex and USDT continue to represent a substantial portion of all cryptocurrency markets. Use and reliance of one stablecoin by almost all exchanges definitely represents a single point of failure regarding accurately pricing BTC. Exchanges and competitors have recognized this and responded swiftly by creating and adding many more stablecoin pairs to the crypto milieu. BTC price will likely remain flatlined until clarity and closure surrounding the Bitfinex and Tether banking issues.

Technicals, including historical volatility and sustained lack of price action, suggest at least a 50% move over the next three months. Current indicators lean bearish to neutral. 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 the US$2,000-US$3,000 range.


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