Bitcoin Price Analysis — Looming SegWit2x brings uncertainty

After breaking the previous level at US$6200, Bitcoin continues to push all-time highs in both price and market capitalization, which now stands at $120 billion. Bitcoin 24 hour trade volume has now eclipsed the market capitalizationsofall**other alt coins except for Bitcoin Cash, Ethereum, and Ripple.

Bitcoin’s latest crisis and looming FUD (fear, uncertainty and doubt) event is SegWit2x, which keeps SegWit and raises the current block size limit to ~8MB. There continue to be concerns from many in the community over centralization of both the miners, who confirm the ledger as valid, as well as the development teams of all factions on both sides of the fence.

The problems with the SegWit2x fork are many, including but not limited to; one developer, little to no peer review, no support by the community, and support by only a select group of businesses, many of which are connected to Barry Silbert of the Digital Currency Group. The most influential company on the list for retail investors being Coinbase, which continues not to offer SegWit addresses three months after SegWit activation.

The major Bitcoin exchanges continue to announce or denounce their support of the fork leading up to block 494,784, around November 15th-19th (depending on hash rate), when the split may occur. Coinbase and Gemini have stated that hash rate will decide which coin is “Bitcoin”, while Coinbase CEO Brian Armstrong, tweeting he’s “100% ok with either chain winning! Just want to see what the market decides.”

Bitfinex has decided to list a split token future, just as they did before the Bitcoin cash fork. They will also list the SegWit2x coin as “B2X”. BitMEX refuses to list the SegWit2x coin due to lack of replay protection, which has not been implemented because, according to lead developer Jeff Garzik, Bobby Lee of BTCC, and Mike Belshe of BitGo, SegWit2x is an “upgrade”, not a fork.

Bobby Lee held an AMA on the /r/bitcoinmarkets subreddit this week where the top voted question raised concern about the SegWit2x situation, asking for further explanation of Lee’s support. Lee gave no direct reply. His brother, Litecoin creator Charlie Lee, said on Twitter, “…I have explained to you multiple times that miners don’t decide consensus.”

Bitcoin Core developer, btcDrak, told Brave New Coin he was not concerned with the SegWit2x situation in the slightest, “there will be a bunch of bravado leading up to it, the chain will fork, and that will be that”.

Ultimately, miner hash rate and community support will be the deciding factor on whether SegWit2x lives or dies. Much like Ethereum Classic, which forked due to the botched DAO, so long as a coin has miner support, it’s ledger will continue to live on. Current, NYA signal support stands around 83%.

The next Bitcoin difficulty adjustment, which occurs every 2016 blocks, is scheduled for block 493920, which is 864 blocks before the SegWit2x fork, leaving 1152 blocks after the fork for the next difficulty adjustment. If hash rate is low or non-existent for SegWit2x, it will take a significant amount of time for the difficulty adjustment to occur and the network to resume without large block times. High block times lead to decreased miner profitability and further disincentivizing to mine that chain.

Even after a retargeting, the difficulty can only be increased or reduced by 25% maximum. Bitcoin recently underwent a +21% difficulty adjustment and is due for a -20% adjustment at block 493920.

Bitcoin Cash solved this problem with an “Emergency Difficulty Adjustment” change, which they will remove with a hard fork on November 13th, before the SegWit2x fork. Bitcoin Cash is attempting to position itself as an improvement and hedge against both of the SegWit chains.

Outside of Bitcoin politics, a major player in the institutional trading world, the Chicago Mercantile Exchange, has announced it will enter the cryptocurrency fray with a cash-settled futures product. Mainstream adoption and awareness such as this paves the way for wider public acceptance, institutional investment and potentially a bitcoin ETF. Organic demand for exposure to Bitcoin continues to be strong, with Coinbase adding 100,000 new users in a single day recently.

Technical Analysis

Price discovery mode continues with no immediate end in sight. Several patterns and indicators help determine potential targets and resistance zones. Fibonacci Extensions are the most widely used among traders looking for resistance above the current price level, especially when there is no data on the left side of the chart to determine horizontal resistance. Drawn from the high of US$6200 to the low of US$3000, the 1.272 and 1.618 extension yield targets of US$7100 and US$8200 respectively.

Price is currently halted at the 1.272 extension and should that level break, the next target would be US$8200, or the 1.618 extension. There are many other extension levels that could be used, I find these to be the most accurate.

There is a multi-month Rising Wedge reversal pattern which continues to build. With lots of room from the current price to the psychological resistance of US$10000, this may pullback once more and continue before a larger correction. Typically, rising wedges, or any reversal patterns for that matter, break down to the 50% level as a rule.

The zone between the 0.382 and 0.5 fib also represents previous ATH resistance turned support. At the very least, any retracement will pause at the $5000 psychological support level.

There is also a multi-month Bearish Three Drives reversal pattern building, with similar targets and rationale to the rising wedge. This pattern is very closely related to Fibonacci retracements and extensions. The first two local highs are used to project the third high, US$8400, before significant pullback, typically to 50% of the entire move, or US$4600.

The zone between the predicted top and the 1.272 fib extension is seen as a short accumulation area before the large reversal move. A Pitchfork starting at January 2017 lows shows price snaking through the median line with several bullish and bearish reversals on the diagonals. As the SegWit2x date approaches, price also remains in the top quartile, or overbought zone.

The pullbacks on bearish events this year have been swift and sudden, typically spanning the entirety of the pitchfork in a matter of days. This may occur through the fork date with an expected return to mean in the months following.

Lastly, the rollover dates on the OKcoin quarterly futures is over a month away. Since 2015, these dates have been approximate representations of interim tops and bottoms of the trend.

Conclusion

The upcoming SegWit2x fork could make an absolute mess of the network, or be a non-event entirely. Should the network suffer, expect traders to flee to other assets like cash, Tether, or alt coins. After the dust settles, the network will likely survive and the SegWit2X event will join the many post-event buy opportunities that have occurred since 2015.

Technicals continue to point North with reversal patterns abounding. A breach of the US$8200-US$8500 range on volume will likely quickly bring price to US$10000. A significant correction is likely either because of the uncertainty surrounding the fork, or the cyclical quarterly nature of the price since 2015.