Bitcoin Price Analysis - Time to sit back

Bitcoin continues its seemingly endless bull rally, gaining an additional 15% this week, closing convincingly above a nasty candle wick at $2745. New all time highs continue to be made week over week, with the spot price having now broken $3000.

Any concerns for a more sizeable correction, or even the end of the bull run entirely, were eradicated when the price made a higher high, albeit an extremely unlikely event in and of itself. This signifies more than anything that underlying bullish momentum has not waned.

On June 4th, Network difficulty had its first double digit increase since January 22nd, now up a staggering 79.4% for the year. Difficulty increases as a function of hash rate, which also continues to break all time highs, now sitting at nearly 5 trillion GH/s.

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Despite the largely unchanged support over various block size and scalability options, there is overwhelming support for SegWit amongst the community. BIP148/UASF on the other hand holds little support based on the metrics.

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UASF nodes continue to rise as the August 1st deadline nears closer, representing 12% of all current nodes and 14% of all Bitcoin Core nodes. Anomalies on the graph represent Sybil attacks, which is similar to ballot stuffing.

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LocalBitcoins saw a slight decrease in global volume this week, with the hardest hit region being China, which is expected considering deposit and withdrawal were recently re-enabled on the domestic exchanges.

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Over the past 6 months, the share of USD and JPY volume has risen substantially thanks to the shifting regulatory milieu in China.

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On the exchange side for the past day, USD continues to hold the highest trading volume. A premium has returned to BTCCNY, something not seen since before the regulatory crackdown.

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Bitfinex, which has somewhat miraculously risen from the ashes of it’s August 2016 hack, holds the highest volume traded amongst US exchanges, closely followed by GDAX.

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Despite being king in BTC volume traded, USD deposits and withdrawals remain halted on the exchange. This plays a large factor in the USD swap rates, which have been increasing since April, after the halt began.

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With $389M in Assets Under Management, the Bitcoin Investment Trust ($GBTC) continues to hold a sky high premium over the spot price. This is likely due to those trying to gain exposure to the bitcoin market without having the knowledge or ability to trade the bitcoin spot market themselves. Each share currently represents 0.09289534BTC, setting Bitcoin price on this exchange at ~$4900 as of market close on Friday.

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Technical Analysis

The trend is your friend until the end, and the trend has been fairly obvious the past few years, even more so this past year. Traders will continue to attempt to determine the strength and duration of the current trend. With price pushing all time highs, indicators relying on market memory are no good. This leaves us with indicators which project price, such as fib extensions, chart patterns, and pitchforks for resistance targets. The overall position of trend volatility can also be assessed with Bollinger Bands. Support can be gleaned from Ichimoku Cloud and/or moving averages.

The two active chart patterns are a large high timeframe Cup and Handle and a smaller timeframe Inverted Head and Shoulders within the handle.

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Both patterns are slightly messy, but should be considered. The Cup and Handle is validated through the shape of market structure, descending volume profile, and handle which does not break the 50% fib. The Inverted Head and Shoulders is validated through the shape of market structure, descending volume profile, an on volume breakout of diagonal neckline resistance, and a throwback to that resistance which confirmed as support. The 1.618 fib extension of Cup and Handle and Inverted Head and Shoulders are ~$3600 and ~$3100 respectively, with a non-conservative measure move for the Cup and Handle just above $4000 (not shown).

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 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.

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The highest timeframe a Pitchfork currently makes sense is the four hour chart, this suggests trend is moving extremely rapidly. Using the anchor points shown above, this Pitchfork holds price consolidating at the median line, with an upper boundary of $3600-$4200 within the next few weeks. If price falls below this Pitchfork, around $2500, it becomes invalidated and price would likely be held by support on a higher timeframe pitchfork.

Bollinger Bands, a measure of volatility channels, are showing evidence for weakening bullish momentum with a bearish divergence on %B on the weekly chart and on both %B, RSI, and volume (not shown) on the daily chart. Percentage Bandwith (%B) measures price placement relative to upper and lower bands and can be used similar to the Relative Strength Index (RSI), so a higher high in price contained within the upper limit of the bands would be seen as bearish divergence.

The bearish RSI divergence on the daily chart has been growing since May 11th. Aside from twice in 2013 (not shown), this is the widest the BBands have ever been on the weekly chart.

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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 this timeframe are bullish, and should therefore not be used as a measure of current entry signals.

There are currently no actionable entry signals on the daily chart, but support on the Tenkan and Kijun lines are printing at ~$2400 and ~$2050 respectively.

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Signals on the four hour timeframe are all bullish as well, meaning there are no actionable entry signals at this time. Traders typically use the Kijun and bottom of the cloud as support targets, ~$2900 and $2400 respectively. A countertrend short trade entry signal would be a candle close inside the cloud with the target being the opposite edge of the cloud, $2400.

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No actionable long entry signals are present on the one hour chart either. The last two entry signals would have been the TK cross with price above cloud on the 9th (yellow) and the pseudo TK cross earlier today (yellow). Bids placed on the Kijun at $2900 would represent a safe re-entry on this timeframe.

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The current rally is moving so fast that even using 50/200 EMA crosses you need to move down to the 30 minute time frame for an entry on May 31st with no current signal to exit.

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Conclusion

Organic growth metrics of the network, which include mining power approaching 5 trillion GH/s, and bullish buying demand remain strong worldwide. SegWit and UASF continue to gain support throughout the community as we near closer to the August 1st flag day. The US and Asian countries continue to lead the world in global exchange traded volume. Technicals are showing price projections of $3100-$4200 within the next few weeks. Oscillators and volume on high time frames are showing evidence for growing bearish divergence. Ichimoku Cloud is showing strong support at $2900, $2500, and $2050. The moving average bullish entry signals are showing no actionable entries on most time frames. Time to sit back and HODL!