Bitcoin Price Analysis - Unchartered territory

Bitcoin made a new all-time high this week with a trading range of $1610-1868, according to the BLX. Volume continues to flow heavily from the Coinbase fiat on-ramp. Network Hashrate continues to make all-time highs as well with successive difficulty adjustments, currently at just over 4 billion GH/s. Difficulty has increased 59.08% year to date, the most recent adjustment being the largest since February 4th.

Bitcoin Core currently accounts for 58% of block support and 83% of node support, while Bitcoin Unlimited accounts for 41% and 9% respectively. SegWit is being signaled by 33% of blocks, extension blocks by 11%. The SegWit UASF is being signalled by 8% of total nodes.

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Regarding the network, the most important impact on the user side has been a substantial increase in fees, not only due to the high price of bitcoin, but due to congestion. An unresolved block size and scalability debate may hamper usability for microtransactions in the interim, as these transactions are less than the fees it costs to send them.  

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Japan has begun to lose it’s edge in global trading volume. Trading in the Yen has been largely driven by feeless exchanges.

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The Bitfinex premium shrank substantially as Coinbase/GDAX closed the gap but has returned. Bitcoins on the exchange typically trade for US$100 more than any other. OKcoin weekly and quarterly futures products remain at a negative premium, which undoubtedly is due to current tight regulatory environment in China. Spot and futures prices began to decouple around April. USD prices broke gold parity around mid-May and haven’t looked back.

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Past results certainly do not indicate future results, but when attempting to decide if a pullback has been sufficient, it’s worth checking these premiums. If there is none, that would suggest price has hit a local bottom.

LocalBitcoin volume, an Over The Counter measure of on-ramping, made a substantial all-time high last week, with a large spikes in many countries.

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Making global headlines this week was the infectious ransomware dubbed WannaCry, an exploit made viable by NSA leaks, and exposing much of the world to Bitcoin. More on this here.

Technical Analysis

The go to’s for targets beyond All Time Highs is Fibonacci Extensions, Pitchfork diagonals, and Pivots. Together, they give resistance levels in uncharted waters. Traders also use Ichimoku Cloud to determine the health of the trend and further identify targets, as well as entry/re-entry and exit signals.

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.

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Price is currently out of the longstanding Pitchfork and below the R3 yearly Pivot. This shows that the trend has accelerated beyond it’s usually pace, signifying both an incoming parabolic move and the end of the trend, or pullback. Upside targets are >$2000 and downside targets are the median line of the Pitchfork.

As we continue price discovery mode, it’s extremely difficult, and perhaps foolish, to attempt to call a top before it becomes obvious. Expect the trend to continue until it doesn’t. Buyers should continue to be cautious based on the position of price in the diagonal zone of the Pitchfork.

Even when the pitchfork is adjusted, indicators point to the price nearing extremely overbought for the given trend.

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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 therefore should not be used as a measure of entry signals currently.

The daily Ichimoku Cloud continues to show a TK disequilibrium, or ‘C-Clamp,’ suggesting that sideways trading with a pullback to the Kijun at $1380 is more likely than upward continuation. Similar to a divergence, a TK disequilibrium can continue indefinitely, but once confirmed, the first support target is the Kijun. For this reason, bids in the zone of the kijun are ideal for re-entry, despite currently being about $430 lower than current price. The median line of the Pitchfork is near this zone as well, suggesting a confluence of support.

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All entry signals on the daily time frame have remained bullish since mid-April with no opportunity of re-entry through a Kijun bounce.

On the four hour time frame, there have been two kijun bounces recently, providing an opportunity for re-entry. The bearish TK cross has not occurred, signalling the long entry from mid-April after a TK cross/re-cross on this time frame remains valid.

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There are two active chart patterns: an Adam and Eve double bottom, and less convincingly, an Inverted Head and Shoulders. Targets measure ~$2000 for both.

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The Inverted Head and Shoulders may just be pareidolia, but the price structure does loosely fit. The volume profile, however, is less convincing.  Nevertheless, both patterns usually signify a bullish reversal at the bottom of a trend or a bullish continuation after a pullback/correction.

On the one hour timeframe, price remains within a tight range and all cloud signals are bullish. The Cloud long entry signal on this time frame occurred when price broke above the cloud, this is known as a kumo breakout.

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Conclusion

Price and hashrate continue to make all time highs. The block size and scalability debate continues unresolved, which have resulted in a clogged network and increasing fees. LocalBitcoin volume continues to make all time highs, suggesting healthy global over the counter fiat on-ramping. Price has been above gold parity for almost one month. Technicals suggest a price target of $2000 minimum with hastening of trend suggesting a parabolic blow-off top in the near future.