Bitcoin Market Analysis 11/16/16

During the last market analysis on 09/09/16, we had longed on the breakout of $600 in anticipation of another move up. Since then the price rallied and retested resistance creating another ascending triangle. 

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I anticipated a potential pullback when the price hit resistance. The price dropped down to $672 for a bounce play and chopped around above $700. 

Recently the yuan had another devaluation against a rallying USD and the Chinese bitcoin markets reacted with a high volume breakout. The CNY markets currently have a 4.3% lead over the USD. This may be an indication that bitcoin is getting ready for another strong bull trend.

The Chinese exchanges made highs not seen since 2014. Potential wash trading aside, the Chinese exchanges had decent volume and Huobi had its highest volume day ever. 

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China Leads the Bitcoin Bull

China led the last two rallies on the breakout of $300 and $500. During each of those rallies, the CNY price started by taking a massive price lead and begrudgingly dragged the US markets with it. A high CNY percentage lead, combined with volume and the devalued yuan may be enough momentum for a real trend. 

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During initial breakouts, the CNY price tends to build enough momentum that it doesn’t spend a lot of time consolidating. That said, it’s still possible we may see a retrace to prior resistance above 5000 CNY. A breakdown below 5000 CNY would put the price back inside the ascending triangle consolidation pattern. 

Bullish Targets for Bitcoin

In the event that this bull rally gathers momentum for another trend, then it’s possible we’ll see prices test resistance around $1000 USD. This number holds emotional value, is close to the all time high and has confluence on the 1.618 Fibonacci extension area. 

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A test of $1000 may lead to a price correction down to the next level around $800, which could form a third ascending triangle before breaking the all time high. These consolidation patterns show that the longer bull trend is healthy, as the price establishes on each level up. This is a big difference from the unsustainable parabolic pump that hit $1260 in 2013. 

Fundamentals 

Bitcoin’s fundamentals are currently more bullish than the bull trend of 2013. The ecosystem has more infrastructure and a wider acceptance amongst legacy investors.

Bitcoin has a positive track record of being a good long term store of value over the past 8 years. It also acts as an uncorrelated asset class and hedge against economic uncertainty such as quantitative easing, negative interest rates, hyper inflation, global debt, capital controls and market bear trends. 

Bitcoin is becoming increasing popular in places like India, where there is a war on cash. Local bitcoin volume has had linear growth over the past few years, which shows real buying demand because the premium makes it unfavourable for trading.

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There’s also the potential for a bitcoin ETF being traded on Wall Street, which can increase buying pressure on the markets. The blockchain is poised to upgrade several new features such as segregated witness, lightning network, sidechains and rootstock. These features can increase bitcoin’s transaction capacity to millions of transactions a day and build turing-complete smart contracts. 

To explore specific strategies related to trading bitcoin, feel free to join our trading community. 

Rocky

I have a passion for Bitcoin and the crypto markets. I work full-time as a cryptocurrency trader, investor and analyst. I also run a crypto trading school at skillincubator.com

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