Bitcoin Price Analysis - China rocks markets

On Monday, Labor Day in the United States, China announced an outright ban of ICOs and recommended money collected by Chinese ICOs be refunded to investors. Although Bitcoin itself is not directly involved with most ICOs, Bitcoin and cryptocurrencies in general, have benefited from the ICO boon by bringing new eyeballs to the nascent space. While this regulation has almost no effect on Bitcoin directly, new investors are likely to be spooked by the news.

China has a history of introducing regulations — often at the peak of large movements in price. In January this year, the People's Bank of China (PBoC) announced regulatory changes on domestic Bitcoin exchanges which sent the Bitcoin price tumbling 36% in a week.

Bitcoin Price Analysis 6 Sep 2017 1

Those regulations were also in line with capital controls at the time. While the new regulations are aimed at reducing scammers, there is undoubtedly an effort to prevent money from leaving the country. The PBoC will continually try to retain control.

Hong Kong’s Securities and Futures Commission has released a cautionary statement in regards to ICOs rather than an outright ban. The statement was similar to a report released by the United States Security and Exchange Commission, a notice released by the Canadian Securities Administrators, and a release from the Monetary Authority of Singapore.

As hype is generated, more and more regulators become aware, and the regulations themselves are often unable to keep up with the largely permissionless innovation that cryptocurrency allows. Although Bitcoin has a decentralized ecosystem, unfriendly regulations coming from any large nation with many investors should be seen as bearish.

Even though most of us abreast of ICOmania and aggressive ICO marketing knew an ICO ban was in the Chinese pipeline, the news was far from priced in. Bitcoin has dropped over 10% on the news, now down almost 12% from its graze of $5000.

Bitcoin Price Analysis 6 Sep 2017 2

The cryptocurrency market capitalization as a whole has shed around $45 billion since the new Bitcoin all-time high and has since attempted to rebound.

Bitcoin Price Analysis 6 Sep 2017 3The health of the Bitcoin network, which had been a concern following the Bitcoin Cash split and mining profitability spike, has recovered. The transaction backlog has reduced greatly and average transaction fees are declining.

Bitcoin Price Analysis 6 Sep 2017 4Bitcoin Price Analysis 6 Sep 2017 5Block times and network hashrate have also stabilized.

Bitcoin Price Analysis 6 Sep 2017 6Bitcoin Price Analysis 6 Sep 2017 7US exchanges still lead global trading volume, but Japan, China, and South Korea hold a substantial 56% of trading volume. Bitfinex continues to hold the majority share of USD volume.

Bitcoin Price Analysis 6 Sep 2017 8Bitcoin Price Analysis 6 Sep 2017 9Global Over The Counter (OTC) volume is back to all-time highs, which is no surprise considering OTC volume largely follows movements in price.

Bitcoin Price Analysis 6 Sep 2017 10Technical Analysis

With fundamental bearish news occurs, such as a government ban of a large percentage of trade volume, price will react accordingly and rather obviously. In these cases, technical analysis takes a back seat until the shock from the news clears. As the ashes settle, traders turn to technical analysis for support and resistance targets, as well as trend determination.

Unsurprisingly, price found resistance at the 1.618 Fibonacci extension drawn from the previous local high to local low. This price zone also represented the psychological resistance of $5000. Coincidental or not, this technical resistance was aligned with the fundamental resistance of the China ICO ban. When technicals and fundamentals are confluent in one direction, there is usually a strong price reaction.

Bitcoin Price Analysis 6 Sep 2017 11Overall, the trend as a whole remains intact. Three ways to measure this are Pitchforks, Ichimoku Cloud, and EMAs.

Each diagonal of the Pitchfork (PF) can be thought of as a potential reversal zone or support/resistance line. The upper yellow diagonal zone being ‘most overbought,’ or the top bounds of the trend, and lower yellow diagonal zone being ‘most oversold,’ or the bottom bounds of the trend.

The PF below, drawn on data from the $BLX, has an anchor drawn in 2015. The median line (red) of the PF gives the expected mean of the trend, which was continually found as resistance until mid-2017. Price will continually attempt to return to this diagonal, now below $3000. Although the amount of data above the PF suggests that this PF is currently invalid or price is significantly overbought based on the rate of the trend beginning in 2015.

Bitcoin Price Analysis 6 Sep 2017 12Another PF can be drawn using more recent data. This shows a similar reversal zone surrounding the median line.

Bitcoin Price Analysis 6 Sep 2017 13The second indicator, 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.

On the daily timeframe, despite the distance from price to the Kijun, which signals heavily overbought conditions, a Kijun bounce has yet to occur. There have been multiple Tenkan bounces, which traditionally signals strong continuation, ie, the trend is so strong, mean reversion cannot even occur. It is important to consider price as overbought despite an attempt at new all-time highs. The Kijun remains a valid pullback target if/when that should occur. The previous all-time high zone, around $3000, also holds as strong support.

Bitcoin Price Analysis 6 Sep 2017 14On the four-hour timeframe, price is slightly above cloud with a bearish TK cross. The previous bullish TK cross around August 25th was a strong sign of bullish continuation, which thrust price up to $5000. There is no current bullish entry on this timeframe. Should price remain above cloud, TK will eventually re-cross bullish, which would be considered a bullish entry signal. Price may also dip below the cloud which would trigger short entry conditions. Overall, this timeframe is mildly bullish but leaning neutral.

Bitcoin Price Analysis 6 Sep 2017 15There was a hidden bullish divergence and tweezer bottom which signaled an interim reversal in the bearish move. This is purely retrospective at the moment, but these are markers to watch while trying to find weakness in any countertrend move.

Bitcoin Price Analysis 6 Sep 2017 16The third indicator we’ll look at is exponential moving average (EMA), a type of moving average that is similar to a simple moving average, except that more weight is given to the latest data.

Bitcoin Price Analysis 6 Sep 2017 17The one hour 50/200 EMAs showed a bearish cross and have yet to recross bullish. Similar to the TK lines of the cloud, a bullish 50/200EMA cross would be a long entry signal, similar to the bullish cross on August 23rd.

Bitcoin Price Analysis 6 Sep 2017 18When price is not pushing all-time highs, the upside targets are simple: the local high and the 1.618 fib extension of the most recent high and low. Using a fib extension from the previous low, this yields a resistance zone of $5500-5800.

Conclusion

As with any over reactionary regulatory news, price will react in a bearish manner. This coupled with timing around an already overbought market only amplifies the downward move. Cryptocurrency is no stranger to this, as it occurred in January of this year as well in a similar fashion. Trend remains strongly intact, but even with the significant pullback, support on the daily chart is about $1000 down, around $3400. Should price hold this range, expect a test of $5500-$5800.