Bitshares Price Analysis – DEX provides silver lining

At USD$203 million, BitShares is the 49th largest cryptocurrency by market capitalization. The asset has fallen sharply over the past 3 months, and now sits at ~11% of its previous June 2017 high.

Founded by Dan Larimer, a programmer based in Virginia, created ProtoShares in 2013. The project was later renamed Bitshares (BTS). The consensus algorithm uses 100% Delegated Proof of Stake (DPoS), which was unique when it was adopted. Larimer was also involved in the engineering and creation of Steemit and EOS, both of which are 100% PoS coins.

Due to payment disputes with other developers on the BTS team, Larimer is no longer involved with the project and has sold his shares in the project. The BTS GitHub remains active with contributions from Fabian Schuh and Vikram Rajkumar.

The BTS protocol revolves around Witnesses (formerly Delegates) who act as specialized nodes, processing network confirmations and governance functions, among other things.

The Witnesses are centralized, vetted and reliable nodes who randomly produce blocks. Transaction fees and block rewards, currently set to 3BTS, are paid to Witnesses.

A block is currently created every 3 seconds, about the average block time of Ripple. The network currently handles 3 transactions per block. However, the BTS network is a complicated system capable of many higher order functions, similar to Ethereum, and currently handles about 2.8 operations per second or about 8.5 operations per block.

Larimer believed that PoS is superior to Proof of Work (PoW) because the reliable node stakeholders of BTS have the best interests of the coin and security at heart. The developer was quick to admit that the consensus method is imperfect, PoS is vulnerable to 51% attack via shareholders, but believed the cost of acquiring 51% of BTS is much greater and acquiring 51% of the hashing power on a PoW system.

The network uses a deflationary supply system, with an available current supply of ~2.6 billion and a likely max supply of ~3.7 billion. BTS can also be burned, reducing total supply and increasing value for investors.

The BTS higher order functions allow for the creation of distributed autonomous companies (DACs), which are similar the decentralized autonomous organizations (DAOs) created on Ethereum, and allow for rules based entities using smart contracts.

The main difference between the two being a DAC pays dividends whereas a DAO is a non-profit which can also earn money. DACs are also being promoted as a key component of EOS. Vitalik Buterin, creator of Ethereum, explained both further here.

A key component of BTS, prescient for ongoing regulations around the world, is the decentralized exchange or DEX. Transactions on the exchange occur in seconds, based on the network speed, and for this reason there can be no high-frequency trading, front running, or hidden orders.

The exchange is location-neutral and the speed of the transaction does not improve based on your proximity to a centralized entity. The exchange also makes use of a currency pegged to USD$1.00, BitUSD, similar to Tether.

While the DEX has been a market leader in decentralized exchange development, the current website appears to be down, and there are talks of a rebranding and update on the cards. Volume and liquidity are also notoriously low, often with large spreads.

Centralized exchanges are superior by most metrics except for custodial risk, which has been a major problem for dozens of exchanges, like Mt. Gox, Bitfinex, and BTCe. Centralized exchanges create a vast honey pot where the exchange security itself is much less secure than the cryptocurrency being traded.

A harsh and unfriendly regulatory environment may one day push all cryptocurrency traded volume to decentralized exchanges, which have no central point of failure and cannot be shut down by a government entity. However, that day is far from here.

BTS volume is led by bitcoin (BTC) trading on Poloniex and Bittrex, followed by trading in the Chinese Yuan (CNY).

Technical Analysis

Since highs were reached in June 2017, BTS has slowly bled almost all its gains. The trend is candidly bearish and has been for months. Coins with this price structure pose a unique opportunity for large risk and reward trades.

Accumulating at this level has significant up side when the alt market as a whole turns around. Alts in general tend to move like a pack of wolves, which was very apparent when many of them made fresh all time highs in May and June 2017.

On the daily time frame, the bullish 50/200EMA cross in April was a viable bullish entry signal, now in hindsight. The bearish 50/200EMA death cross occurred in mid-September, a bearish long exit signal, three months after highs. There is no immediate threat of trend reversal based on the 50/200EMA cross.

There is also a very obvious descending volume profile over the past few days with no change in price. This is typically suggestive of a consolidation or accumulation period, which is often followed by a high volume movement in price.

On the four hour time frame, the bearish 50/200EMA cross occurred much closer to the highs posted in June, and therefore preserved much more profit from the bullish 50/200EMA long entry signal on the daily chart in April.

Since the bearish 50/200EMA cross there have been several failed attempts to break the 200EMA (red arrows below). A clean break of the 200EMA, with candle closes above the 200EMA, will likely occur prior to the 50/200EMA cross on this timeframe. Candle closes below the 200EMA signaled the end of the bull trend (yellow), before the bearish 50/200EMA cross.

The Ichimoku Cloud on the daily chart, using singled settings (10/30/60/30) for quicker signals, shows nothing but bearish signals with several Kijun bounces (red arrows), bearish continuation signals.

The Cloud and Kijun are beginning to flatten, suggesting bearish momentum has been completely exhausted over the past few days. The first signs of life will likely occur after the bullish TK cross.

On the daily time frame, with Ichimoku Cloud using doubled settings (20/60/120/30) for signals with higher accuracy, again all Cloud signals are bearish with several Tenkan bounces (red arrows), or bearish continuation signals.

Since breaking the Kijun in August 2017, price has failed to retest the mean reversion level. This is suggestive of a possible counter trend move to the Kijun, 3853 sats, in the immediate future.

Additionally, there is a very large Cloud forming, which is ripe for an edge to edge trade with a target of 9493 sats. The entry signal would be a candle close inside the Cloud.

A similar trade setup occurred on the Bitcoin weekly chart, admittedly after a year of accumulation. Alts generally move much faster than Bitcoin.

Lastly, on the four hour time frame, Ichimoku Cloud again shows all signals bearish. A Kumo breakout with a candle close above the Cloud, which has not occurred since before highs were posted in June, would be a strong long entry signal.

Conclusion

BTS offers much more than just a cryptocurrency, but has essentially collapsed under its own weight of complexity and lack of compelling use cases. BTS has lost much of its smart contract market share to Ethereum. The decentralized exchange offered on the platform may provide a future golden egg service.

Technicals suggest a definite bear trend with no immediate reversal signs. However, a descending volume profile after a volume spike occurred, suggestive of an accumulation period before an opportunity for trend reversal. Upside targets, post trend reversal, include 3850 and 9500 sats.