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Bitcoin Price Analysis 13 January 2016

This week bitcoin broke up to upside, contrary to my forecast from last week. The virtual currency moved up +6%, topping off at $466 while global fiat financial markets suffered under turbulence.

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Painting the Tape

Perhaps it was the Chinese propping up price, fleeing stocks, devaluation and capital controls. In markets, bear moves have been known to fail in bull markets and vice versa. But, volumes on OKCOIN are seemingly suspect, like this week.

“the charts were bearish. Momentum indicators were bearish, there was bear Divergence on Daily OBV, market structure was bearish”

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OKCOIN registered 750k in volumes over 4 hours; a green breakout candle seen above. A closer look reveals 90% of this traded in a narrow range between 2800 CNY and 2830 CNY; an uncanny resemblance to front running trades, a highly illegal practice in regulated markets, involves the house fulfilling orders it own on both stacks of the order book. The objective is to give the impression of huge interest, while normal traders are locked out. How does price rise on sell volume?

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Bitcoin is now trading in a range, after rising sharply from a $406 low on Bitstamp on December 6. This marks the lower bound of this range, upper resistance is at $467. Testing this ceiling is an attempt to regain the November 4 bull run high at $500. This chart draws attention to a top reversal pattern – a shooting star reversal pattern. A rejection at this level spanning $378 – $434 shown below.

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It seems $460-$470 is an important level, more than $500. Getting past it will mark a major breakout. However, failing out of this range again equally means a significant bearishness.

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Since the $162 bottom on January 12 2015, the market has retraced to 50% off its top, and bounced up again to just above 23% fibonacci level at $420. It is a choppy market for sure, some calm before the storm.

there will be a big movement one way or another this week or early next week.”

Bitcoin Fundamentals

RBS warns of an imminent global deflationary crisis

RBS believes we are on the edge of another crisis, exhibiting similar patterns to the Lehman crisis in 2008, partly due to policy chaos in China had unsettled markets

This article from the age.com says “major stock markets could fall by a fifth and oil may reach $US16 a barrel”

Meanwhile,

Chinese market turbulence triggers Bitcoin, soars 6%

China’s stock exchange woes, while devaluing its Yuan have been on the news alot lately. China’s equivalent of the Dow Jones index, Shanghai’s Stock exchange, was down over 5% in the first 3 hours of opening, triggering a shutdown 30 minutes into trading hours.

Bitcoin shot up overnight to $466 high in early Asian trading hours, 5 am to 10 am GMT + 3 on January 7, along with Gold which finally broke out above the $1,100 resistance; the only assets that were up – XBT +6%, XAU +1%.

Authorities are worried by downward pressure, at a time when price sits right above the an important 3000 support level.

the faster Chinese depositors will seek to circumvent China’s capital controls and convert their increasingly less valuable money into either other currencies (via bitcoin), or into gold said zerohedge

Bitcoin scalability debate drags on

Bitcoin’s fantastic start to 2016, has been limited to the 3 month run up; not so much for the protocol which continues to divide the community. Seen as a far too risky alternative, Peter Todd and developers from Blockstream oppose a hard fork, instead favoring Segregated Witness, a soft fork proposal which promises to scale by up to 4X.
Breadwallet CEO thinks otherwise. He spoke to Bitcoin Magazine saying

“Bitcoin’s block-size limit will need to be increased through a hard fork as well – and sooner rather than later”

A hard fork is a real risk, and one that will hold back bitcoin until scalability and security are resolved. As a looming unknown, this risk will continue to depress prices and bitcoin’s true value. I can’t say by how much, but a high market cap is unlikely when the entire Bitcoin project is on the line.

Bitcoin Weekly Price Forecast

This week, I am neutral. I expect choppy sideways price action as bears and bulls battle for territory. We might consolidate into early next week. As highlighted below, it could swing either way, and there is room for both outcomes. Up to $550 or down to retest $330.

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At this point, it is about whether the trend will persist and the $162 bottom was the final bottom. With the halving fast approaching in July, chartists are already drawing lines on how this will play out. Will history repeat itself?

Here is a chart of a bull forecast

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Unequally, a few chartists say the final bottom is yet to come. Typically, bottoms are followed by an impulsive 5 waves up accompanied by high volumes. This was not the case with $162.

Therefore, a final wave 5 push is expected here – as high as $700 – but followed by a correction. A chart of this forecast.

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