Bitcoin Market Analysis 04/21/16

Bitcoin has been coiling up for weeks inside of a large triangle that started forming since the test of $500 last November. Trading volume increased yesterday with the first signs of a breakout. 

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Usually the Chinese CNY markets lead bitcoin bull runs but this time Bitfinex was leading the charge. 

There is a bull pennant forming on the 1hr chart, right under $450 resistance which is usually a continuation pattern of a trend. 

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A month ago the 1w Stochastic RSI crossed just above 20. Using this indicator on the 1 week charts can help confirm larger trends in the markets. 

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In the event that bitcoin continues on its upwards trajectory, we can see that the next major Fibonacci levels are $542 and $660.

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Last week bitcoin prices were incredibly stable. This is usually considered the quiet before the storm.

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Using the bbands to measure volatility we can see that the last time prices were that stable was right before the run up to $500. 

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We can also see another period of stability right around the last bitcoin halving near the end of 2012. 

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Trading Recap

The last public bitcoin market analysis I did was on 12/28/15. The price at the time was around $430 and I had indicated that the markets looked bearish and was expecting a breakdown below $400. 

That said, I knew that as long as prices stayed above $350 (higher bottom support than the first correction to $300) that we were still in a larger bull trend. 

There are many indications that prices may drop below $400 support this week. As long as bitcoin stays above $350 support, the markets are still in a bull cycle.

Fundamentals

The bitcoin blocksize debate was likely the cause of keeping prices suppressed. The wash out down to $350 happened to correlate with Mike Hearn’s rage quit. 

Recently a pull request was submitted to implement a scaling solution called segregated witness. Bitcoin started to rally soon after. 

There are several major innovations for Bitcoin on the horizon such as sidechains, lightning network and rootstock.

  • Sidechains will allow alternative blockchains to connect to Bitcoin.
  • Rootstock will implement ethereum capabilities as a sidechain, which will allow DAPPS to integrate more easily.
  • Lighting network has the potential to scale bitcoin to handle millions of transactions a second. 

All of these new features may further solidify Bitcoin’s first mover advantage and network effect. The more utility the network has the higher the chances of its longevity. There are currently only several million bitcoin users so a boost in adoption will increase buying pressure on the limited supply. 

The Bitcoin Halving

In July of this year the bitcoin mining rewards will be reduced from 25 coins to 12.5. This will decrease the inflation rate from 9% to 4.5%. Our current rate of inflation releases 1,314,000 new coins annually. This adds over $500 million in selling pressure on the markets. 

A reduced inflation rate combined with growth in user adoption has the potential to push prices into new highs. 

One way to measure user growth is to look at peer-to-peer volume transaction for services such as LocalBitcoins as well as Paxful. This tends to be organic buying pressure since most coins are sold at a premium and are not just traders shuffling the same coins. 

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Although the volume is still relatively small we can see exponential growth for Paxful. 

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Another way to measure user adoption is to determine how many accounts are registered with hot wallet services such as Coinbase. If their statistics are accurate then Coinbase has 3.6 million users. 

There are many new bitcoin exchanges springing up in countries all over the world. This will make it easier for more people to buy bitcoins in their local currency. 

Overall bitcoin appears to be bullish and may be getting ready for another leg up. 

 

Rocky

Crypto trader and investor. My preferred style is swing trading and longer term accumulation plays. I help coach traders and share my trades over at skillincubator.com
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