Will Bitcoin Tear Itself Apart?

This week, the Bitcoin market sentiment seemed to suddenly turn from bullish to bearish overnight. Alternative cryptocurrency markets also turned bearish, as the sharp decline of bitcoin dragged everything down with it. Ethereum dropped 40% from $280 to a low $198 as at writing this. Bitcoin market dominance, a metric that tracks the market capitalization of Bitcoin against the total market capitalization of all cryptocurrencies, moved back to over 50% of market share, perhaps the only positive news of the week. Bitcoin reasserted its significance in the overall market, despite an 8% drop since the last price analysis.

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Last week, all eyes were on a continuation pattern of a potential break out of a huge triangle consolidation that had been active since the $2980 high of June 11. Traders keenly watched a break out to the upside and aligned bids for another leg up past $2600 resistance. Price halted at a peak $2634, and retraced gradually to retest the declining top slope of the triangle marked X. This is typical of triangle break outs, that often retrace back to bounce off this trendline and confirm the direction of the break out.



But, the rebound failed to launch, and quickly spiralled to a decline, reminiscent of the failure at $2800 level. $2600 once again failed and price dropped sharply to $2242 in 24 hours, simultaneously with a massive sell off in all of crypto. Traders turned bearish, attributing the drop to the scaling debate and looming deadlines for BIP 148 UASF, SegWit2X, SegWit, Bitcoin ABC, UAHF and the reality of a potential hardfork that threatens to split the bitcoin blockchain into 3 or more chains .

‘Countdown to SegWit’, by Bitcoin Magazine, outlines all the possible signalling and hard fork scenarios. It all looks bearish and a month of volatility should prevail for much of the next 5 weeks.

wave count.png

wave count.png

The Elliott Wave count on the 1D and 3D chart is still in tact. The current messy consolidation is part of a wave 4 correction looking for a bottom. With all that is going on with the fundamentals of the protocol, we could be looking at a bottom as low as $1800, or even as far down as $1600 without breaking the wave rules and guidelines.

wave 3 length wave 4.png

wave 3 length wave 4.png

Plotting fibonacci extension lines of the length of wave 3, from the base of wave II, $892 on March 22 on the 3 day chart, price is still above the 38.2% at $2174. This level should be tested in the coming week. Statistical Analysis of Wave Retracements:

  • Retrace of 24-30% of Wave 3 occurs only 15% of the time,
  • Retrace between 30-50% of Wave 3 occur 60% of the time
  • Retrace between 50-62% of Wave 3 occur 15% of the time.

The purple and blue arrows are real possible targets.

Bitcoin’s Civil War

Mainstream media finally seems to have caught up with the scaling debate that has been going on behind the scenes, for the past 2 years. Bloomberg, posed “Will Bitcoin Tear Itself Apart?”, as its title for the deadlock between competing scaling proposals.

SegWit2X is an outcome of an agreement of majority economic stakeholders and miners, to activate a hardfork to increase the blocksize limit to 2MB, and also signal for Segregated Witness. It was born out of a compromise at Consensus 2017, an annual conference that brings together actors in the industry. Jihan Wu, CEO of Antpool, and the largest manufacturers of mining hardware, Bitmain, considers SegWit2X like an olive branch. It offers an agreeable roadmap between Bitcoin Core, who proposed Segregated Witness, and miners.

Bloomberg quoted Wu saying

“SegWit is itself a great technology, but the reason it hasn’t taken off is because its interest doesn’t align with miners”

Segregated Witness is controversial, and has drawn criticism for fundamentally altering the format of Bitcoin transactions. It separates signature data from the transaction hash, which some say introduces new threats to the whole ecosystem. Peter Rizun, a developer of Bitcoin Unlimited, an alternative implementation, made a presentation at the Future of Bitcoin conference last week outlining the systemic risks of SegWit.

The deadlines for signaling for these proposals fall within the months of July and August, which should ultimately have an impact on price. For the coming weeks, expect more volatility as the market chooses which direction to scale bitcoin.

Wall street Analyst Forecast $55,000 Bitcoin in 5 Years

Tom Lee, a widely followed wall street strategist, modelled a bold forecast of $20,000 – $55,000 per Bitcoin by 2022. In a report titled “A framework for valuing bitcoin as a substitute for gold.” Lee draws parallels to gold, like the digital currency’s artificially set scarce limit, whose demand, he emphasizes, would cannibalize the demand for gold. According to CNBC, he expects investors to view bitcoin as an alternative to gold; while XAU gold has a $7.5 trillion market, Bitcoin’s $41 billion market could benefit from massive inflows which would lead to higher valuations.

Even more interesting, Lee speculated on Central Banks buying into digital currencies if the total market cap crossed $ 0.5 trillion.

Lee was quoted saying.

“In our view, this is a game changer, enhancing the legitimacy of the currency and likely accelerating the substitution for gold (by investors),”

Bitcoin Weekly Price Forecast

This week I am skeptical of any price rises and will consider them corrections in a downtrend. I expect price to retest the $2000 level.

bearish cross.jpg

bearish cross.jpg

Carpenoctom tweeted this chart of a possible 50 and 100 EMA bearish cross on the 4 hour chart. As in late March, if it activates then $1800 – $2000 will be the first targets for a drop. Considering the technical deadlock on how to scale Bitcoin, these bearish targets are right on time.