Bitcoin Price Analysis - Crypto adoption continues

Bitcoin (BTC) has continued to slowly recover from its brutal 56% drop from the all time high in December. The cryptocurrencies market cap now stands at US$195 billion, with over US$3.5 billion traded over the past 24 hours.

A key feature of BTC is the predictable deflationary monetary supply, which is supported by a dedicated user base which will hold their assets for an extended period of time. This controlled supply suggests that as demand increases, price will respond accordingly. As we enter 2018, BTC and other cryptocurrencies are gaining a foothold in the world’s lexicon, while the importance of the innovative utility becomes more widely understood.

Bitcoin Price Analysis 29 Jan 2018 1

The bitcoin block reward, currently 12.5 BTC per block, is set to halve in June 2020.

Several components of commerce have begun to experiment with the benefits of using BTC as a currency, although Steam and Stripe have now dropped bitcoin payment citing fees and volatility. Both companies accepted bitcoin for high volume, low value transactions, and will continue to assess bitcoin as a payment option.

These payments will likely be relegated to the Lightning Network (LN) in the future, a time-locked, bidirectional payment channel allowing for nearly free transactions. WooCommerce has already shown a working LN channel, although LN solutions remain in alpha during further development and testing. 

Bitcoin Price Analysis 29 Jan 2018 2Larger transactions, however, such as real estate sales in Miami and New York, student tuition, and even lawyers fees continue to be paid in BTC. A montessori school in New York has even positioned BTC and Ethereum with other cash or debit transactions, and does not accept credit cards.

These transactions bring additional demand pressures, with use cases beyond that of speculation. While these transactions represent a small percentage of BTC volume, expect adoption to quickly increase alongside cryptocurrency understanding in mainstream circles.

Further demand will come from on-ramps being enabled for new users. Robinhood recently announced a crypto addition to their retail stock app. Nearly one million users have signed up for early access. Residents in California, Massachusetts, Missouri, Montana and New Hampshire will have access in February. A similar competing app through Circle has yet to open for retail users, while Square’s Cash App quietly enabled bitcoin purchasing for more users this week.

The global leader in retail bitcoin trading, Coinbase, announced a partnership with Trading Technologies this week. The partnership enables thousands of institutional clients to trade the crypto spot market side by side with 45 other markets.

As on-ramps continue to come online, the BTC network has continued to hum along. More transactions are currently leaving the mempool than entering, substantially decreasing pending transactions.

Bitcoin Price Analysis 29 Jan 2018 3Fewer pending transactions lead to lower fees, which has enabled people to consolidate their BTC to SegWit addresses. Transactions sent from a SegWit enabled address benefit from cheaper fees, and recently started gaining traction. A well known Bitcointalk forum member, known as Loaded, recently moved 40k BTC to a native SegWit address. The transaction fee was US$1 to move ~US$400m.

Bitcoin Price Analysis 29 Jan 2018 4Bitcoin exchange traded volume this week has been led by the US Dollar Tether (USDT), US Dollar (USD), and Japanese Yen (JPY) markets.

USDT, which is pegged to the US Dollar, has seen an increase in volume recently as traders exit USDT and re-enter crypto markets. This was potentially impacted by news that Tether dissolved its relationship with Friedman LLP. Exchanges with USDT continue to hold a small premium over exchanges which do not use USDT.

JPY markets appear to have shrugged off news that the Japanese-based exchange Coincheck lost ~US$400 million in NEM in a recent hack. Coincheck will be covering the loss from operating profits, which is becoming common practice after a heist. Bitstamp, Bitfinex, and BTCe did the same following a variety of losses. Due to large volume and exchange fees, it is always in the exchange’s benefit to regain their users' trust.

Bitcoin Price Analysis 29 Jan 2018 5Technical Analysis

Price remains on the bullish side of long term support, with consolidation suggesting bullish continuation. Indicators such as Ichimoku Cloud, Moving Averages, and Pitchfork help determine entry and exit points, as well as the current state of any given trend.

On the weekly chart, using Ichimoku Cloud, price has bounced on the Kijun two consecutive weeks. Price also touched the weekly 20 period Simple Moving Average recently (not shown). These support tests are expected, and occur frequently throughout any given trend. Should the Kijun support level continue to hold, there is a high probability of trend continuation and further all time highs, as has occurred on six occasions since 2016.

Bitcoin Price Analysis 29 Jan 2018 6On the three day chart, price has held above the 50EMA since breaking the resistance level in October 2015. Price has tested this level several times over the past three years and has bounced off it three times in recent weeks. Price is also above the yearly Pivot, which has held as support, suggesting a test of resistance above US$21,500.

Bitcoin Price Analysis 29 Jan 2018 7The Ichimoku Cloud on the daily chart shows that price is once again within the Cloud. The Cloud zone itself is referred to as a no trade zone due to the typical trendless nature of price action that occurs within its boundaries.

A short entry would trigger if the Cloud twists bearish with a candle close below the Cloud. The TK cross is currently bearish. A long entry would trigger when the TK recrosses bullish with price above the Cloud. This is not likely to occur anytime soon. Price will likely continue to range within the boundaries of the Cloud until significant volume pushes price through support or resistance, above or below the Cloud.

Bitcoin Price Analysis 29 Jan 2018 8A Pitchfork on the four hour chart, with anchor points in January, May, and July, shows price bouncing on the median line, or mean of the trend. This support confirmation may indicate a retest of the upper limit (purple) of the Pitchfork.

Bitcoin Price Analysis 29 Jan 2018 9Another Pitchfork, on the four hour chart with anchor points in February, May, and July, shows price consolidating below the lowest quartile of the trend (pink). Extensions of 1.272 and 1.618 added to the Pitchfork, borrowed from Fibonacci extensions, show potential confluence with support zones at these levels.

Buying in the current zone comes with the risk of a bearish invalidation of the Pitchfork, with the upside potential being a return to the median line, followed by a test of the upper limit. A significant break below the lowest diagonal support (red) will invalidate the Pitchfork.

Bitcoin Price Analysis 29 Jan 2018 10Metrics from the Ichimoku Cloud on the four hour chart are all bearish. If price closes above Cloud with a bullish Cloud, a long entry signal would occur. Long entry signals such as this have occurred eight times in 2017 and once in 2018 (not shown), these trades have resulted in winning trades all but twice. A bearish TK recross with price below Cloud would strongly suggest bearish continuation on this time frame. Another long entry signal for an edge to edge trade triggers with a candle close within the Cloud, yielding a target of US$13,200.

Bitcoin Price Analysis 29 Jan 2018 11On the four hour chart, there is a large horizontal resistance zone between US$12,000 and US$13,000. A candle close above US$13,000 would suggest a further test of local highs. The Adam (V) & Eve (U) chart pattern has resistance between its measured move and 1.618 Fibonacci extension (not shown), US$12,800 and US$16,880 respectively.

Bitcoin Price Analysis 29 Jan 2018 12Lastly, the most definitive long entry signal trigger occurs with a bullish 50EMA and 200EMA cross. Price fell 36% after a bearish 50/200 cross on January 14th. Price has bounced on the four hour 850EMA seven times since beginning the bullish trend in 2015 (not shown).

Bitcoin Price Analysis 29 Jan 2018 13Conclusion

It has never been easy to enter the cryptocurrency market, but a myriad of on-ramping options continue to come online and general understanding of cryptocurrency is increasing. Adoption marches on at a rate never seen.

Technicals suggest a high likelihood of bullish continuation, with several tests on established long-term support, and the near completion of a double bottom chart pattern. A retest above US$16,000 by the end of the week is within the realm of possibility. A candle close below the daily 200EMA would suggest further bearish momentum and an end of the long term bull trend.

Further background information on the technical analysis discussed above can be found here.