Bitcoin Price Analysis – The wait and see approach

Bitcoin (BTC) has been ranging within a downtrend recently, but has recovered 50% from lows set in early February. The market cap now stands at US$151.48 billion, with US$3.26 billion traded in the past 24 hours.

There was some buzz around cryptocurrency regulation at the recent G20 summit, held in Argentina this week. Ultimately, officials steered clear of calling for a coordinated clampdown on the cryptocurrency market due to a lack of information, saying not “what do we regulate?” but “what is the data we need?”

In the meantime, the Lightning Network (LN) went live on March 15th. The second layer software solution enables trusted, bidirectional, off-chain, hub and spoke payment channels. In a blog post, the LN team noted that “this release is intended for developers of future Lightning applications (Lapps) along with technical users and prospective routing node operators.” Many have compared the current state of LN to Arpanet, an early form of the Internet.

The team behind LN, Lightning Labs, also announced that it raised US$2.5 million in seed financing with investors, including; Jack Dorsey, CEO of Square and Twitter; David Sacks, former COO of PayPal; Bill Lee, angel investor in Tesla and SpaceX; Jacqueline Reses, head of Square Capital; and Charlie Lee, creator of Litecoin.

Dorsey remains strongly bullish on the future of Bitcoin. The CEO recently released a Bitcoin trading facility on Square’s Cash.App, stating in a recent interview with The Times that the world will ultimately have a single currency, as will the internet, adding “I personally believe that it will be bitcoin." Dorsey will be a keynote speaker at one the industry’s biggest conferences, Consensus on May 14th-17th in New York City. Payment integration between Square and Twitter using LN remains a likely possibility in the future.

However, transactions per day have continued to decline sharply since December, and are currently around 195,000. The transaction highs largely mirror the price of bitcoin. However, transactions have also declined due to batching, where one transaction is sent to many addresses at once instead of each transaction being sent individually. Transaction fees have fallen dramatically in response to decreased network traffic and increased use of SegWit.

Pending transactions have also evaporated, compared to December and January, due to increase scalability and decreased network usage. There are currently only ~6,000 unconfirmed transactions. Unconfirmed transactions peaked on December 22nd with 261,000 transactions in the mempool.

The network hash rate and difficulty continue to increase month over month. This trend should continue unabated, with several new mining hardware products being shipped by Q2 this year. The current rate of block discovery reflects the continued addition of hash rate. Miners currently find a block every ~9.5 minutes, on average. Mining profitability is currently near an all-time low, reflecting levels not seen since April 2017. Price, transaction fees, network difficulty, block times, and block reward all influence mining profitability.

Exchange traded volume this week has been led by the Tether (USDT) and USD markets, mostly on Binance, OKEX, Bitfinex, and GDAX. $300 million USDT was created yesterday, but not issued, the first creation of it’s kind since January. Tether has a controversial history, mainly stemming from the lack of audits. BitMEX recently linked the company to a potential bank in Puerto Rico, although loosely, which may act as a custodian for the USDT dollars backing the peg.

The Korean premium remains in the Korean Won (KRW) market, where BTC sells for ~4.6% more on average, up from 2.4% last week. CNY market volume remains absent due to government regulation barring cryptocurrency trading. Chinese over the counter exchanges remain as the final bastion for Chinese Bitcoin traders.

Global over the counter (OTC) volume is also sharply from December and January, and is currently less than half of record highs. Despite this, Europe, Indonesia, and Venezuela posted a record high in volume for their respective currencies over the past week.

Europe’s OTC volume may be related to uncertainty regarding Brexit and the status of the European Union. This week, the EU agreed to Brexit transition period suggesting the schism will proceed as planned despite initial talks of reversal. The exit day is set for March 30th, 2019.

Indonesian OTC volume may be driven by a dramatic rise in local Bitcoin investors, which are slated to outnumber stock participants according to Bloomberg. One Indonesian exchange representative stated, “we are seeing almost 3,000 new members signing up every day”.

The ongoing problems with currency inflation in Venezuela are likely fueling OTC demand in the region. The country is very familiar with cryptocurrency. President Maduro has gone as far as launched his own Petrodollar, with the help of Russians according to Time.

Much like the decline in Google searches for Bitcoin over the past few months, tweets per day mentioning Bitcoin have also trended down since December. Comparatively worldwide, searches for Bitcoin by region remain highest in South Africa. An increase in Social mentions of Bitcoin will likely also be bullish for Price.

Technical Analysis

The overall trend is beginning to show bearish sentiment, indicating a possible trend shift from the years-long bull market. Indicators such as the Candlestick and Chart Patterns, Ichimoku Cloud, Moving Averages, and Pitchfork help determine entry and exit points, as well as the state of the current trend. Further background information on the technical analysis discussed below can be found here.

On the weekly chart, using the Ichimoku Cloud, price has remained below the Kijun, which has historically provided long-term support. A definitive Kijun bounce would have indicated bullish continuation, whereas a breach leaves the status of the trend indeterminant.

The Relative Strength Index (RSI) has also dropped below 50, a momentum reset, for the first time since 2015. Bullish continuation would be supported by the RSI holds near 50. A definite break of the 50 level would suggest a reach below the 30 level, and support the beginning of a bear trend. Price would likely react by reaching for Cloud support and yearly pivot support (not shown), US$2500 -$3000.

On the daily chart, the Ichimoku Cloud metrics are mostly bearish. The Cloud uses four 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.

The current Cloud metrics on this time frame are; price below the Cloud, the Cloud is bearish, the TK cross is bullish, and Lagging Span is below Cloud but above Price. As is often the case, the Kijun (red line) acts as a major level of support or resistance for the trend. Until the Kijun is breached, the trend remains intact.

A long entry will not occur until the Kijun and Cloud are breached. The next opportunity for a long entry will occur with an Edge to Edge Kumo trade. This triggers with a candle close inside the Cloud. The target is the opposite edge of the Cloud, ~US$12,600 in this case. The most bearish scenario would occur following a bullish then bearish TK recross below Cloud, with a failure to breach Cloud resistance.

The 50/200 daily EMA is also bullish, but is threatening a bearish cross within the next two weeks if price does not begin to move above the 200EMA. If the 50/200EMA touches and does not cross bearish, this should be seen as a strong bullish signal.

Price also remains range bound within a large triangle, which should resolve by the end of April. A definitive break of either diagonal resistance or support should be conclusive for the direction of the next large Price move.

A long-standing Pitchfork on the daily chart, with anchor points in February, May, and July, shows price reaching the 1.618 level again following the recent drop. The 1.618 level is borrowed from Fibonacci extensions and was also roughly seen as resistance at US$15,700 and US$17,000. An extension of 2.5 can be added to encapsulate the entire trend.

Buying in the current zone comes with the risk of a bearish invalidation of the Pitchfork, which occurs with a significant break below the lowest diagonal support. The upside potential is a return to the median line, followed by a test of the upper limit. If price maintains the trend, a price of ~US$30,000 by July 1st is possible based on the mean of the trend.

Lastly, on the four-hour chart, the Cloud is showing a potential bullish edge to edge trade. Price has entered one edge of the Cloud and is expected to reach for the other edge of the Cloud, near $9500. These edge to edge trades have a higher probability when the TK cross matches the direction of the trade, which is currently not the case. A second long entry would be warranted with a bullish Kumo breakout as well as a bullish 50/200EMA cross.

Conclusion

Regulators and government officials have been unusually laissez-faire regarding restrictive or burdensome laws. Except for China and New York’s BitLicense, most government bodies remain on a fact-finding mission with the thought that Bitcoin, Blockchain, or Distributed Ledger Technology has immense potential. Investors and titans of tech, like Jack Dorsey, are intimately connected with payment gateways and highly enthusiastic about further implementations and development of the Bitcoin protocol.

Technicals continue to suggest a fuzzy but bearish outlook. For all the stars to be aligned, the position of price relative to the daily Cloud and daily 50/200EMA would match. Although Price is currently below the daily cloud and below the 200EMA, the 50/200EMA cross remains bullish. A bearish 50/200EMA cross with a breach of the triangle and Pitchfork support will very likely bring Price to around the US$3000 level. On the flip side, if the trend continues in its current form a target of US$30,000 is highly likely. Much like the regulators, speculators need to take a wait and see approach throughout the next month.