Bitcoin Price Analysis – Asian demand drives prices higher

Bitcoin experienced a large correction last week, closing down about 25% from it’s all-time high. This week, price has begun to recover and has broken the key 50% retracement level.

China’s easing of regulations played an instrumental role in the continued bullish bounce. The big three Chinese domestic exchanges, OKcoin, Huobi, and BTCChina, all resumed withdraws this week after a three month regulatory halt. We can expect Local Bitcoin volume to drop off precipitously in China in the coming weeks, despite making a new all time high this week.

Conversely, Japan’s over the counter volume is much lower due to several free-flowing exchanges.

In the US, the Winklevoss COIN ETF was resurrected a few weeks ago, and demand for an ETF product type vehicle can be gauged with the Bitcoin Investment Fund ($GBTC). The fund continues to offer a large premium, with each share trading at $511, and each share holding 0.09289534BTC.

Needless to say, a large premium over spot price likely represents retail investors desperately trying to gain exposure to this market, which they have little interest in securing or owning outright. Should the COIN ETF eventually get the green light, we can expect the GBTC premium to shrink dramatically.

On the protocol front, Block and Node support for Unlimited or Core remains relatively stagnant, with a slight up tick in BIP148 node signalling this week. We can further deadlock in the block size and scalability debate until BIP148/SegWit activates on August 1st.

Technical Analysis

The single most important signal on the chart at the moment is the large weekly wick. This current weekly candle close will likely determine if trend will immediately continue or possibly retrace to lows below $1900. Bitcoin has never broken up after a wick of this size on the weekly chart. A tweezer top would make breaking up even less of a probability.

To further diagnose the intra day health of the trend we can use Ichimoku Cloud and Pitchfork, as well as Pivots.

The Ichimoku Cloud is a constant, auto-drawn indicator which quickly offers an immense amount of valuable information on any time frame. The Cloud is best used at higher time frames as more data generally provides more accurate signals and less false positives.

The indicator uses moving averages and dynamic support and resistance to make projections of key zones, as well as capturing 80% of any given trend. As long as the price remains above the Cloud, sentiment remains bullish. Price in the Cloud indicates a neutral trend, and below the Cloud indicates a bearish trend.

When the Tenkan (T) is over the Kijun (K) sentiment is bullish. K over T would indicate bearish sentiment. When the Lagging Span (LS) is above the Cloud and above the price sentiment is bullish, below the Cloud and price would indicate bearish sentiment.

The best entry signals for the Cloud occur when the trend is obvious, but 1 or 2 of the signals have yet to become confluent with a higher time frame trend. All signals on the weekly timeframe are bullish, and therefore should not be used as a measure of entry signals currently.

The spot price was almost perfectly was supported by the Kijun after this weeks correction. This is known as a “Kijun bounce,” and typically signals trend continuation. Traders often place bids on or around the Kijun on either the daily or four hour time frames for this very reason.

Cloud signals on the four hour chart are currently not all bullish, despite the extremely bullish bounce thus far.

Price position relative to the Cloud, the Cloud itself, and the Lagging Span position relative to price and cloud are all bullish. The TK cross however, is not. A bullish entry signal would occur after a bullish TK cross has occurred on this time frame. We can also see several Kijun bounces to the downside on May 29th, and another to the upside today. How actionable this signals are is complete dependent on trading style and which product is being traded – spot, futures, etc. When the TK cross does occur, the immediate target is the local top, or in this case, the all time high.

On the one hour chart, there was a perfect edge to edge trade, meaning, an entry signal occurs when a candle closes in the cloud (yellow arrow) with the target being exactly the opposite edge of the cloud.

All cloud signals are currently bullish. The Cloud long entry signals flipped bullish when the TK cross occurred with price above cloud. The exit signal would be a bearish TK cross, should it occur.

Using the Pitchfork, which draws trend channels of support and resistance, and Pivots, we can determine how current price fits in the trend as well support and resistance based on prior key levels.

On the daily chart, once price posted new a new all time high price discovery quickly brought us to the R5 yearly pivot and the 2.618 fib extension from the previous extreme all time high and low of trend.

The failure to return to the median line of the longstanding pitchfork, drawn from 2015, was another signal that the rally was different this time. This rally continuation was likely due to the lack of resistance or market memory, once price again reached a new high.

Despite the extreme distance above the median line of the longstanding pitchfork, expect price to attempt to reach for mean reversion in the coming year. This has been strong support for many months, with multiple price touches on extreme lows. Support for conclusion of the pullback should occur around the R3 yearly pivot, price consolidation just below that pivot, or the 1.618 fib extension from the previous all time high to low, $1800.

Conclusion

Asian demand for bitcoin remains high, pushing prices higher, while the UASF bitcoin scaling solution will activate on August 1st. Should the price signal a double top here, expect a deep retrace below the current local low of $1884. There remains a confluence of support between $1800-$1900.