Bitcoin Price Analysis - Expect volatility

Bitcoin has been on a rollercoaster ride over the past 10 days with multiple deep retracements following almost complete recovery. Price continues to flirt with a new all time high above $3000.

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In addition, Bitcoin has a chance to break its previous all time high in market capitalization, above $50.4 billion.

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The Bitcoin network hash rate continues breaking all time highs, briefly spiking to 7 trillion GH/s. The last adjustment added 6.92% to difficulty, making the cumulated change +104.27% since January 2017.

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BIP91 has activated, which means SegWit should be active after the lock-in period in a few days. Should miners turn their attention to alternative blockchains, such as Bitcoin Cash, transaction times will increase until the next difficulty adjustment or until hash rate returns.

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Global OTC volume remains stable, near all time highs. Expect volume to soar if Bitcoin does make new price highs.

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Bitcoin price action has been led by USD volume over the past 24 hours, largely from Bitfinex. There are no significant premiums between USD and Asia markets for the time being, with Korean Won trading having fallen back in line.

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The cryptocurrency markets have gone through several other key fundamental events over the past few days.

Bitcoin Cash

After several iterations with various sparring factions, the most recent emergent alternative bitcoin implementation appears to be Bitcoin Cash. While Bitmain’s Jihan Wu initially described his “User Activated Hard Fork” as a “contingency plan” for the User Activated Soft Fork (BIP 148), Bitcoin Cash will be using those protocol changes. To obtain Bitcoin Cash, you must hold the private keys to your BTC, or hold your coins on an exchange promising to deliver your equivalent Bitcoin Cash holdings. The fork will occur at 12:20 UTC August 1st. Several exchanges have announced their readiness for Bitcoin Cash trading and ViaBTC has begun trading Bitcoin Cash Futures.

Whether or not prices will rise or fall remains to be seen but one thing is for certain, expect extreme volatility for both Bitcoin Cash and possibly Bitcoin should nefarious actors attempt to create substantial downward pressure on Bitcoin after the split. Miners who support Bitcoin Cash will likely use their hashing power to mine the Bitcoin Cash blockchain. Luke-Jr, a Bitcoin Core developer, suggests that nothing will happen and “users who stick to Bitcoin Core and compatible full node software will be entirely unaffected.”

SEC Deems ICO Securities

Despite many initial coin offerings hiding under the guise of crowdfunding, the SEC has deemed ICOs securities if they pass the Howey Test. The SEC also published an additional bulletin regarding ICOs here. Read more regarding tokens relating to the Howey Test here and here.

The ruling was a long time coming, and surprised very few people in the industry. If anything, it gives further legitimacy and legal guidance to an exploding sector of the fledgling industry.  

BTCe Goes Offline

BTCe is one of the oldest cryptocurrency exchanges, and known by most as mainly serving the underbelly of the internet. The exchange went offline for unscheduled maintenance on July 25th. In the days following, the world learned of Alexander Vinnik’s arrest for money laundering, as well as a connection between his personal accounts and stolen Mt. Gox funds sold on BTCe. Read the full indictment here and FinCEN assessment here.

The site remains offline, with the last tweet from BTCe suggesting resuming service in 5-10 days. However, if the server were seized by law enforcement, it is unlikely BTCe will be back online any time soon. Overall, despite immense amounts of incorrect media reports, the Bitcoin price was relatively stable when the news was made public and digested.

Technical Analysis

Trend following indicators, such as the Ichimoku Cloud, Pitchfork, and Moving Averages, have a difficult time adapting to current market conditions, which are quickly volatile or slowly consolidating. This is a rare instance where I’d rely on fundamentals, rather than technicals, to guide trading decisions.

Due to the likely Bitcoin Cash hard fork, which essentially doubles everyone’s coins, I’d expect significant buying pressure on the market from those making certain they hold Bitcoin pre-fork. While Bitcoin Cash may quickly be worthless, the siren song of seemingly free money is irresistible. Post-fork, many exchanges will halt trading and the network itself will likely be somewhat of a mess regarding transaction times in general. It may be best to go have a pint and wait for all of this to blow over.

However, lets consider the technical indicators. 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.

On the daily chart, all cloud signals are currently bullish except for the TK cross, a strong long entry signal. Traditionally, TK crosses occurring above the cloud are extremely rare.

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On the four hour chart, signals are all essentially bullish barring the lagging span. However, price has been significantly ranging or making large moves quickly. When this occurs, I do not rely on Ichimoku Cloud for reliable signals. The Cloud is meant for trend identification and trend following, not the current conditions.

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The median line (red) of the Pitchfork gives the expected mean of the trend. Price will continually attempt to return to this diagonal. Each diagonal of the Pitchfork can be thought of as a potential reversal zone or support/resistance line. The upper blue diagonal zone being ‘most overbought,’ or the top bounds of the trend, and lower blue diagonal zone being ‘most oversold,’ or the bottom bounds of the trend. Price is currently at the mean of the trend (ML). This gives plenty of upside, well above $3400.

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The previous two 50/200 EMA crosses on July 8th and July 19th on the one hour timeframe have been very predictive for the interim trend. Currently, there is again a bullish 50/200EMA cross. Generally, lower timeframe signals are unreliable, such as the myriad of crosses on this timeframe prior to the 8th (not shown). However, the one hour time frame may encapsulate enough market data at the moment to give just the right speed of signal to provide reasonable certainty and trading actionability.

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While I’m not personally a fan of time theories relative to moon cycles or seasonal changes, there is one notable exception. Below is a plot of the OkCoin quarterly expiration dates, which have synced rather well with the top or bottom of the interim trend. The chart suggests to me that’s it’s too early to make another all time high, until after the next quarterly expiration in September.

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Conclusion

With Bitcoin approaching new highs and SegWit activation nearing closer, a large faction of Miners and other individuals have decided to fork Bitcoin and create Bitcoin Cash. This will likely cause disruption to the network during the event and significantly increase transaction times. Very few exchanges will be actively trading Bitcoin Cash immediately following the fork. Expect price volatility to be binary. Considering very few exchanges will continue running through August 1st, they may be no volatility until after exchanges are brought back online.