Bitcoin Price Analysis 20-Jan-2016

This week, the price of bitcoin fell 18%, weighed down by negative sentiments on systemic risk – blocksize fork debate. Price fell off a cliff at $431 on January 15, 1am UTC + 3, in a series of dumps all the way down to a low $352 in 24 hours. December 3 was the last time price was here, and it looks set to continue as the blockchain fork debate intensifies. As I write this, price is at $380 on Bitstamp.

1

1

The break to the downside, forced price out of a trading range bound by $465 and $417. A huge red candle highlights this on the chart below.

2

2

$480 was a tough nut to crack, not just in October 2014, but for the most recent run up in November too. Seen above at (1), the rejected candle wick from $504 set a level to beat, which $465 last week failed to break on a second attempt.

As of writing this, the market sits at $350 level support at (2), retracing up to $384, but still within expected range. Support/Resistance here, is nowhere near the strength at $480, so I don’t expect it to hold on downward pressure. A 50 dollar range consolidation here, $350 – $400 is likely. (3) $300 is the next logical support and target if $350 fails.

3

3

It is no coincidence that a rising slope support line, from (1) a $198 low in mid August 2015, cuts precisely at $350; where price is consolidating. It held well in the run up, and is now under test. I expect (2) to buckle, any upside here is limited. Inevitably price should continue trending down to $320.

4

4

Moving average lines on the 3 day chart; the 13d SMA looks set to turn bearish, heading towards 50d that cuts across $320. A reasonable target on further selling pressure in the short term, closely resembling price action in August – September 2015.

Bitcoin Fundamental News

Cryptsy Bitcoin Exchange Admits Hack

Via a post on its site, Cryptsy exchange came clean on an increasing number of complaints by customers experiencing trouble withdrawal funds. In July 2014, the exchange suffered a IRC backdoor trojan attack in its code wallet, losing 13,000 BTC and 300,000 LTC ($7.5 m and $1.08 m at the time).

Rather than cause panic after this event, management opted to quietly reimburse funds from its profit. However, it was no longer possible to keep a tight lid on this loss, especially following an expose by Coinfire that sparked off a bank run.

Our current customer liabilities for BTC is around 10,000 BTC”

The firm now acknowledges insolvency and could declare bankruptcy.

Mike Hearn says Bitcoin has failed, Price plunges 18%

In a long winded damning article on bitcoin, ex Core developer Mike hearn, called it a ‘failed experiment’, expanding on why the blocksize deadlock masked deep rooted problems and a failed governance model. Beyond the bitterness and emotion that is evident, he raised some valid points on ongoing scalability debate and power struggles amongst core developers.

Along with a well timed article on New York Times, Hearn’s admissions catalyzed a chain of reaction in the Bitcoin community, resurfacing the blocksize debate with full vigour. Sentiments were bound to hit the market; Western exchanges broke lower, triggering a cascade of sell offs to a low $352.

The future of the Bitcoin Protocol is fundamental to the price of bitcoin, as systemic risk, it is bound to negatively affect price.

More Scalability Proposals on the table

As the blocksize debate heated up following Hearn’s dramatic exit, the commitment by the community to see an implementation adopted has given birth to new proposals. This has put Core developers under pressure as multiple teams gather support for their blocksize increase roadmaps.

Bitcoin Classic, the latest out of the starting blocks, intends to increase the block-size limit to 2 megabytes later this year, according to Fork log. While it is currently under development,

Jonathan Toomim’s Bitcoin Classic proposal has garnered support from as much as 72% of the network’s mining capacity” vs “a consensus threshold set at 75%”

Gavin Andresen and Jeff Garzik, prominent figures in this space, are listed as developers.

Bitcoin Weekly Price Forecast

This week I expect price to consolidate around the $350 – $390 range. Not for long, as it is a mid consolidation before further downside to strong support at $320 – $300. Motive trends move down in a 3 wave zig zag pattern; expect a zig zag pattern to $300 in the short term.

In the medium term, fundamental issues remain – scalability, decentralization and security. The ongoing debate on a choice of implementation to chart a roadmap will continue to loom and suppress price until a fork (hard/soft) happens. Therefore, a couple of scenarios are on the decks at this moment.

5

5

An expanding ending diagonal of 3-3-3-3-3 construction which could see retest of 2013 high or make marginal new high to complete the larger cycle of 5 waves”

This implies the January 2015 $162 low was the bottom, and the slope rising support line would hold at about $229 – $250. Price will bounce back up as it has past 2 times in January 2015 and August 2015. Target $1200

6

6

a contracting triangle since Nov 2013 high as shown in the chart. Chop about in tighter range till we complete this before breaking to upside to retest the Nov 2013 high or make marginal new high”

Once again, $250 is emphasized as a key turning point as the larger triangle contracts to finally force price to the upside – target $1000

77

(3) and (4) shown above, are bearish leaning forecasts. Both predict a return to below $162 low. (3) would break the slope line at $250, and fall to below January 2015 low; (4) bounces off $250, head back up to a high at $650, but proceed to fall to below $162. Targets here are $150

Based on the uncertainty on a hard/soft fork, I see scenarios 3 and 4 as more likely. Proposals coming out now could be ready in as soon as 6 months, and take till end of year to deploy. But then again, there is the matter of the upcoming Block reward halving in July, which is bound to generate some speculative activity.

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