Bitcoin Market Fundamentals
FinCEN, new ruling on commodity backed digital assets
This week, Coindesk reported FinCen’s response to an anonymous company inquiry, ruled that asset backed virtual currency tokens were not exempted from money transmitter laws subject to some preconditions. For instance companies working with tokens and coloured coins that allow customers and 3rd parties to exchange certificate of deposits might require money transmitter licenses. The company in question, deals in gold and bitcoin, issuing certificates on the blockchain.
Bitcoin XT fork debate drags on
This week, intense debate on proposed Bitcoin XT hard fork by Gavin Andresen and Mike Hearn once more took over. Mike, outlined once more his arguments for a fork in a post Why is Bitcoin forking? A tale of differing visions. In it, he elaborates his case for larger bitcoin blocks (8MB). Bitcoin XT is intended to effect a shift to 8MB sized blocks, doubling every 2 years. The earliest scheduled date for this chain fork is 11 Jan 2016, on condition of a 75% miner adoption of this patch, already released on August 6th on top of Bitcoin core.
“As of August 16th, 7.2% of all nodes were running Bitcoin XT, with the count growing steadily.”
XT-node adoption statistics can be viewed here
SIDENOTE: It is uncertain how much impact these debate have on the market price of bitcoin. Given its highly publicized nature, traders cannot ignore the ramifications of a hardfork. January 2016, only 6 months aways makes this more of a reality for prices now. I would characterize this as an extremely significant event with $ 3 billion worth of digital assets at stake. Even more so, when statements such as “If Bitcoin XT Succeeds You Can Kiss 21 Million Cap Goodbye” by Jon Matonis begin surfacing. This pernicious tone, looms over the market and is only likely to accelerate.
BITCOIN MARKETS THIS WEEK
This week, bitcoin sentiment did not change much from last week’s bearish inclinations. After touching $260 last week, bears relented, allowing price to push up higher to $273, before resuming the dominant downward trend, a tell-tale sign of overall market weakness.Just days before, the market broke below 100 MA with force; this time, an attempt to rise above, where 100 MA cut across $ 273 on the 12 H, price halted and succumbed to resistance pressure.
There are more red candles than green, and as of writing this, price touched a low of $ 162 on BitFinex, prices last experienced in January on the way to a run up. This seems to have been an exchange limited flash crash, but the ensuing panic spreads to the whole market affect prices on the rest of exchanges which remained fairly stable at $230 – $221.
A glimpse of what happened
Ever since the peak at $316 in July, followed by a double top attempt at $ 298 later in the same month, moving average indicators have formed a good measure of trend and sentiment. As every moving average (both simple and exponential) was broken, a failure to recover back above points to a further decline in momentum. This has repeated itself over the weeks on different timescales – at first shorter time frames, but now, the larger time frames fit the narrative as well.
A look at the 1 day MAs shows this explicitly. All lines broken on the way down, market finding little to no support at these levels where typically, one expect rebounds if any signs of upward momentum exists. The 200, 00, 50 and 30 day MAs are shown here.
A much similar case with EMAs on the 1 day charts where price is now well below all of them from lower time frames up to the 1 day chart.
On 3 day charts, we’ve been on periodic cycles since the bottom in January; spending alternating periods of time in green and red zones. The support line from $166, strong up to this point, broke early today morning as Bitfinex led the line in a crash to low $220s. Now, the pattern seems eerily similar to that from October
WEEKLY PRICE FORECAST
This week I am bearish to sideways. I expect prices to retrace up gradually from today’s panic crash, upto $240 – $245 range. That might be it however, while it is too soon for price to collapse again,a sideways trend might be in order in the range between low 200s and mid 200s.
Despite breaking out from the 18 month long bear trend dating back to December 2013, it doesn’t seem to have been convincing as can be seen above. The upper trend line sits squarely between current prices and heading back into the bear channel. Back into the channel would mean the last 2 months were a sharp projection out of the channel and not really a break out. The implications of a resumed bear trend would mean possible targets of $100 (bottom channel support). For now, we wait.