Bitcoin is in Trouble
This week Bitcoin’s internal wrangles, that have intensified over the past 4 months, dragged down prices to below the $2000 price level. Within hours, price painted a red candles spiralling down under the weight of the bitcoin scaling deadlock. The fast approaching August deadlines, that threaten to split bitcoin into 3 or more chains, turned into reality for bitcoin traders. All of a sudden, gloomy forecasts of anywhere from $1800 to $1100 did not seem as ludicrous as they would have 5 weeks ago. The price of Bitcoin is now between a rock and a hard place.
On last week’s analysis, price had broken to the upside from a 3 month consolidation triangle, but failed and fell back within the triangle structure, invalidating the break out. A brief sell off found support at $2300 in blue, a level that has been retested 4 times since May 28. Support levels are a good measure of market resolve. This time price retraced briefly from this support, moving up $100 to $2400.
Unlike the triangle pattern in green that broke up on May 12, this time was different
This 12 hour chart shows how the 21, 30, 50 and 100 day simple moving average lines tightened as the market approached the apex of the triangle. Tightening often signals an impending break out. Once the 100 day, slower moving average crossed above the short day moving averages, the direction of break out was clear. This was clearly a bearish cross in hindsight.
The bounce off support was only a minor correction of an unfolding downtrend. Bitcoin could only muster a $100 rise to $2400, before declining again to support. On this 2 hour chart, price tested $2320 twice, failed to convincingly sustain the trend up, and on the 3rd test of support, broke through support. Downward momentum picked up, cascading into a sell off over the next 48 hours, only retracing marginally at $1974, before spiralling further down to a low $1830.
Any hopes of an upside at this point had been shredded, and the market sentiment was clear; the price drop was a sell off in anticipation of an uncertain month leading up to a possible fork.
As at writing this price is in a short term reversal, in what looks to be another correction, of the large drop from $2400 to $1830. Large drops are often followed by significant retracements in the opposite direction. Sometimes, these will fool traders into thinking the motive trend is over, when really, it is a pause before continuation.
An inverse head and shoulder pattern formed on the 30 minute chart on Bitstamp, breaking up past the neckline to an intraday high of $2300. Price pushed back above the exponential moving averages, and the right shoulder found support on the 100 day, continuing up past the neckline to the current price at $2300.
Chinese Exchanges Announce Preparation of a Hard Fork
BIP 148 UASF, a user activated soft fork to activate SegWit by force and undermine miners request for a hard fork cap size increase, has a deadline set for August 1st to branch off from the main chain. Despite continued miner signalling for SegWit2X, an alternative proposal that includes both SegWit and a hardfork cap increase, the number of chains after August 1 remains uncertain. Bitcoin ABC (adjustable block size), another proposal has also come up in the past 3 weeks. It implements a hard fork to increase the cap size, does not include SegWit, does away with replace by fee and will fork away UASF after August 1.
This uncertainty, poses a risk for exchanges that have an interest in protecting customer funds against replay attacks. To curb this threat, Okcoin and Huobi announced they will suspend BTC withdrawals and deposits between June 31st and August 1st, and will list all competing forms of bitcoin in the event of a chain split.
The next 3 weeks will be a test of mettle for the bitcoin community, as miners, users, developers and economic stakeholders will be forced to pick sides. I fail to see how these events will not affect price, and I expect volatility as the deadlines draw near.
The only upside to this deadlock, is the market will have a clear winner after the dust settles. Trading on exchanges will play a crucial role in deciding the eventual winners, as traders, investors, speculators and whales will back the most promising chains with their pockets.
Bitcoin Weekly price Forecast
This week I am bullish on volatility and bearish on the price of bitcoin in the coming weeks. The risk of a Bitcoin splitting into multiple chains will cause prices to fluctuate as the market jostles to pick side. After August 1st, I expect opportunities to pick up coins at a discount. Warring factions might mass dump coins on competing chains to shake market confidence. Picking the right coin, longest chain, and majority hashing power is the optimal strategy to buy the winning coin.
My opinion, is any Bitmain and nChain backed chain will likely be the winner in the long run. I am bullish on this Bitcoin fork.
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