Bitcoin price Analysis 6 January 2016

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These last 2 weeks of bitcoin have been a contracting triangle pattern – flat top with a rising bottom (an ascending triangle wave pattern). Price bounced at a support at $ 406, and it has been grinding sideways since December 27th. It is part of a larger bearish drop from $ 464. I expect sideways action to break out to the downside, and is only a consolidation after an impulsive drop from $ 455 to $ 406

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On a 1 day chart, there is a range bound trend between $ 400 and $ 455. It formed around the shooting star trend reversal pattern from November. If price is to go higher, it has to break this level strongly.

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On this chart, the 13, 30, and 50 day exponential moving average are contracting, a signal that almost always results in a break out. (2) is similar to (1) from November 25, a contraction that broke out upwards.

The RSI is similar in both instances, close to oversold levels below 50 – (3) and (4). It will be interesting to see if RSI behaves as it did in November and trend up to oversold levels with price, OR not.

The Great Halving

The next block reward halving, expected on July 18 2016, is the talk of town. Speculators ramping up expectations on diminished supply are betting on a repeat momentous price impact. The last halving was on 28th Nov 2012 when block reward halved from 50 btc to 25 btc. In the months following this event, price went up 20 fold – from $ 13 to $ 240 in April 2013.

I think next halving is not priced in but again most likely there will be a huge speculative bubble.

A price chart of the last halving:

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Despite this precedence, other traders believe the efficient market hypothesis is priced in by the market already, and any rise in price on this day will be subdued. You don’t have to look far, Litecoin’s August 25th halving event was anticipated by July. Price topped 1 year highs at $ 8.9, but, in the grand scheme of things, only hit 20% of it’s $ 46 ATH!

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Maybe it’s priced in for the smart money who already knows about the halving but not for the speculators who hear about it late and jump in when price is already moving up?        

Hard to say which way it will swing. Just watch the weekly markets and you will spot it on a trend.

Should the Fed issued its own Fedcoin

This week David Andolfatto, Vice President St. Louis fed, blogged on Central Banking and Bitcoin for Newsweek, proposing a Fedcoin. At one point he writes

“[…] Critics might argue that it leaves people exposed to potentially poor monetary policy. This may be true and, for these people, currency substitutes should be available (including Bitcoin).”

While governments may pigeon hole bitcoin as an asset, or a currency substitute, its a great start as a valid alternative. I see it as the beginning of adoption. A crisis event would put bitcoin at par with fiat based assets as options.

Doug Casey, an investment advisor on how to profit from economic turmoil,says We’re really close to the edge of the precipice

“It’s going to be much more serious than it was back in 2008 and 2009 and it’s going to last much longer and it’s going to be much different.”

Casey is betting on gold for such times, as an asset that’s not simultaneously somebody else’s liability. Bitcoin has similar qualities too and stands to gain in the event of such as crisis.

Sidenote:

Chat with Traders EP 053 talk to BTCVIX whaleclub trader inside the realm of Bitcoin speculation podcast. Worth a listen.

Bitcoin Weekly Forecast

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Right now, I am watching how price behaves relative to flat support at about $ 340 and a rising trend line dating back to August’s $ 192 low. A failure to hold $ 340, would lead to a break down to the trend line, and consequent failure of that will lead back to $ 300 or even lower. I am toying with the base of an early larger triangle formation.

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This triangle squeeze could likely break to the upside and continue the bull trend from October. A scenario that lines up well with the expected halving. This is captured below in wave count [ B ] in red. Lower cap (b) in blue would be the result of a break of expected triangle rising support.

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There is leg room for more upside up to $ 700, a high from April 2014.

Analysts are expecting Gold to go lower, as low as $ 750, as the US dollar is expected to strengthen. For this reason, I expect any increase in Bitcoin price right before or right after the halving to retest lows. I see bitcoin and gold in similar categories as safe haven assets. The moment gold turns, will mark a change in economic sentiment. I expect bitcoin to rise with gold.

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