The price of Bitcoin has been trending up the last 3 weeks, making consistent zig zag pattern from $891 to a high of $1229. What looks like a renewed bull trend has given life to bullish hopes. From the traders’ forums, to twitter forecasts and price analysis – almost everyone seems to be bullish. Some analysts are predicting lofty highs of $1500 if the current trend continues. Despite the ongoing deadlock on how to upgrade the Bitcoin protocol, it seems, at first glance, the market is intent on at least retesting the all time high at $1350 on Western exchanges. Are we on the precipice of “the next great bitcoin bubble?”
The chart above plots both the price of XAU/USD Gold and XBT/USD Bitcoin. Price is flirting with gold parity, the second attempt in a month after breaking past the price of Gold back on March 3rd 2017. Last time, the excitement of a possible Bitcoin Trust ETF approval by the SEC stirred higher prices, hours before release of the official decision. The breach only lasted for hours, before the reality of the NO decision settled in. Price began a drop down.
But today, the market seems to have selective amnesia. I do not think we are anywhere near the beginning of the next great bitcoin bubble. Not even close.
Even though price has approached the price of gold this week, much has radically changed since last time. The community at large – developers, users, companies, miners – is split on how to upgrade the bitcoin protocol. Bitcoin Unlimited, a hard fork proposal to allow miners to independently configure the size of blocks they will validate, is supported by 35% of the mining network.
Segregated Witness, a soft fork proposal by Bitcoin Core, requires a 95% threshold of miner and mining pool support to activate. The disagreement between the two groups has led to a bitter deadlock. UASF, the most recent soft fork proposal, cuts off mining control on the network, enables individual users, merchants, exchanges, wallet providers and other economic actors to activate soft forks with the software they run. In a nutshell, it is an attack on miners and their economic power.
So while price has been going up, there has never been greater uncertainty over the the future of the protocol, and by extension, the price of Bitcoin.
Vinny Lingham, linked the current protocol dilemma to price in the Power of the Invisible Hand
“Regardless, the logical behavior is if the market believes there is no risk of a fork, the price should be a premium to $875, and as the risk of a fork increases, the price should drop steadily…”
Vinny is right on the money. Traders who think price will break to new all time highs are blind to the matter at hand. Miners are the economic Proof-of-Work majority, Core developers are largely responsible for maintaining the protocol – none is greater than the other. I expect this deadlock will soon reflect itself on the price.
So what is supporting the current price rise?
This week, news out of Russia revealed the central bank was planning to capture bitcoin and cryptocurrencies under its AML/KYC/CFT laws by 2018. In an interview, Deputy Finance Minister Alexey Moiseev said regulation recognizing Bitcoin as legitimate financial instrument and currency will be necessary. Authorities will have to decide if digital currencies will be considered as asset, cash or security. The catch is, all transactions between two parties will come under scrutiny and tracked just like bank operations. According to Bloomberg,
“The central bank is developing a joint position together with the government on digital currencies.”
2 weeks ago, Japan officially passed a law by amendment to its Banking Act, on Bitcoin and virtual currencies, that recognized Bitcoin and virtual currencies as a method of payment.
“The new law define Bitcoin and other virtual currency as a form of payment method, not a legally-recognized currency. Bitcoin will continue to be treated as an asset unless there are future revisions or directives to Japanese tax law.”
But there is more to the current rise in price than meets the eye. BitFinex prices have been leading Western exchanges, while price on Chinese exchanges remain flat. BitFinex sued Wells Fargo for apparently withholding their funds over AML concerns; the hearing is set for April 25th. This seems to have affected client fiat withdrawals out of the exchange since the account freeze on March 25th. Some clients have opted to instead buy BTC with their USD balance, cash out BTC and convert it to fiat via alternative means. This would partly explain the premium on Bitcoin on Bitfinex, and the continued rise as bids prop up the price.
Meanwhile, CNY prices are flat since fiat withdrawals were halted after a PBOC intervention. On BTCChina and OkCoin for example, prices have moved little since trading at $1050, despite the continued uptrend on Western exchanges. The question mark (?) on the chart above is the BitFinex premium. Okcoin has upgraded its AML/KYC policies and intends to resume withdrawals as soon as April 23.
Bitcoin Weekly Price Forecast
This week I expect price to consolidate or continue rising, but, with upper limits on how far up price will go. Current resistance is at $1250 – $1260, breaking this level will easily lead to $1300 and possibly retesting all time highs. This will have to happen before OKCoin activate withdrawals on the 23rd as per their press release, and the BitFinex proceedings o 25th of April.
I am looking out for a top, because it will mark a resumption of the bear trend that we got a glimpse of on the week of March 1st to March 25. The current price rise is a zig zag; zig zags are more often than not corrections. My expectations from my last price analysis have not changed. The $1200 target from last week was hit and we are now staring at the possibility of an irregular flat correction. This correction, breaks past the start of wave A momentarily, before resuming back down for a wave C – an A-B – C correction top.
The chart above by btc_joe plots the targets for a break down to $600. If you are bullish on the current set up, be cautious and watch out for a top going up.