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Bitcoin Price Analysis — The trend is still your friend

After a strong rejection at US$6200, the Bitcoin price is up 11% from the week's lows, now with a market capitalization of just under US$100 billion. As the age of the Bitcoin fork is being thrust upon us all, with Bitcoin Cash, Bitcoin Gold, and on November 16th,SegWit2x, the fundamentals surrounding these forks are murky at best and a disaster at worst.

After a strong rejection at US$6200, the Bitcoin price is up 11% from the week’s lows, now with a market capitalization of just under US$100 billion.

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As the age of the Bitcoin fork is being thrust upon us all, with Bitcoin Cash, Bitcoin Gold, and on November 16th, SegWit2x, the fundamentals surrounding these forks are murky at best and a disaster at worst.

Because each fork is a separate blockchain, each requires mining power, or hash rate to secure the ledger. There have already been multiple difficulty adjustments, delayed block confirmation times, and variable hash rate with Bitcoin Cash.

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Bitcoin Gold forked after block 491,406 on October 24th with a 100,000 coin pre-mine, uncompleted code, no replay protection, and no peer review or testing.

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So long as Bitcoin cash was able to succeed by creating billions of dollars out of no-where, there will undoubtedly be many, many more clones looking to cash in on that success. As an investor, this brings continuous buying pressure from users looking to cash in on this airdrop dividend which thus far have ended up on major exchanges like Bitfinex, cashing in on trading fees from users buying or selling. Although the Bitcoin brand becomes diluted, to those who are unaware, the legacy Bitcoin chain remains unchanged.

Jeff Garzik, lead developer of SegWit2x, also announced his own alt coin, Metronome, which allows for payment settlement across multiple blockchains. The coin will initially be issued on Ethereum Classic and Rootstock on Bitcoin.

One high volume cryptocurrency trader told Brave New Coin anonymously, “Metronome steals the SegWit2x developer and leaves them dead in the water. Just a bunch of payment guys trying to make new payment channels with their own solution.”

SegWit transactions, which had been rising steadily since activation, have dropped significantly over the past week.  Speculation as to why includes users sending or holding coin to or from major exchanges, to hardware or other wallets offering a guaranteed snapshot for the fork airdrops. Based on the decline, fewer transactions utilized SegWit addresses for this process.

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Meanwhile, hash rate and difficulty have made a new all-time high. Should hash rate remain stable, the next difficulty adjustment will occur in 17 days. A sustained and significant drop off in hash rate, such as miners switching to SegWit2x, would extend this difficulty adjustment beyond 17 days.

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To cause the most disruption, seen as a transaction backlog, a miner can add a significant amount of hashing power just before the difficulty adjustment and remove that hashing power after the difficulty adjustment occurs. The mempool, or number of unconfirmed transactions, has spiked slightly over the past few days, in correlation with a decline in SegWit usage.

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Bitcoin exchange-traded volume has been shared by Japanese Yen (JPY) and US Dollar (USD) markets over the past 24 hours, with most of that volume coming from Coincheck and Bitfinex.

The Chinese Yuan (CNY) pair continues to hold a negative premium on the index, suggesting sustained selling with a lack of demand. Conversely, the South Korean Won (KRW) and British Pound (GBP) pairs hold a premium, suggesting sustained buying. In both cases, the differentials suggest difficulty with arbitrage in those countries.

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Technical Analysis

As price once again approaches new all-time highs, re-entering a phase of price discovery, it’s time to lean on indicators that project resistance targets such as Fibonacci extensions and Pitchfork.

Fib extensions such as the 1.272 and 1.618 can be used for immediate resistance targets beyond the current local high. In the first of three runs since April 2017, price reached and exceeded the 1.618 extension on the following run before pulling back.

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The most recent run reached the 1.272 fib, only exceeding it slightly. Both the previous 1.618 extension and current 1.272 extension show resistance at US$7000. Additionally each run pulled back to 50% of the previous run, which shows currently at US$4600, also the previous all-time high.

A Pitchfork, or an estimation of the active trend channel, currently shows price in the buy zone at the bottom quartile. Price has remained in this quartile for over a month and provides additional confluence as a buy signal, simply based on duration.

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The median line directly above current price shows a target of US$8500. The mean of the trend is represented by the median line and is often tested frequently throughout a trend channel. If price closes below the bottom quartile, the Pitchfork is no longer valid.

There is an active bearish three drives which stereotypically have harmonic symmetry in up thrusts. This pattern is very closely related to Fibonacci retracements and extensions. The first two local highs are used to project the third high, US$8400, before significant pullback, typically to 50% of the entire move, or US$4600.

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The 1.272 fib extension is used as a stop loss and price below that level can be thought of as a short accumulation zone. This pattern occurred previously in the trend and significantly exceeded the sell zone before reaching the 50% target. Ichimoku Cloud can also be used to assess the general health of the trend. Currently, all Cloud metrics are strongly bullish on the daily chart.

There is weak but growing evidence for a TK disequilibrium, standing at 13% currently, a reversal sign signaling overbought conditions. This disequilibrium will most likely continue to grow as price makes a new all-time high. The previous two TK disequilibriums reversed after 20% and 17% respectively.

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The bullish TK crosses (yellow) have continued to be excellent long entry signals, as expected on a high time frame Cloud. The most recent occurring on October 7th, now with a 37% gain.

On the four hour chart, all Cloud metrics have remained bullish since the Kumo breakout and bullish TK cross at the end of September. A bearish TK cross would be a long exit signal.

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Lastly, on the one hour chart, the 50 and 200 EMAs have crossed bearish and bullish again. The previous EMA trade from the bullish cross to bearish cross yielded a 50% move.

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Expect many more Bitcoin forks in the near future. Airdrops will continue until it is unprofitable to do so. The legacy Bitcoin protocol will remain unaffected. The legacy Bitcoin network may experience temporary disruption should a significant portion of hash rate swap to an alternative chain. Once the difficulty adjusts on the legacy chain, any transaction backlog would begin to adjust and clear itself normally.

The best way to obtain the forked coins will be using a hardware wallet or exchange which guarantees a snapshot before the airdrop occurs. Technicals suggest a possible move to US$7000-US$8500 before a pullback to US$4600.


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