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Bitcoin Analysis from Tone Vays.
Note from the Author: After spending time with the Australian, New Zealand and San Francisco Crypto-Currency communities, it’s time to get back analyzing. Please see (@Tone_LLT) for more timely updates throughout next week.
About a week and half ago we concluded with the following:
It is nice to see Bitcoin stable for a short stretch of time, even if it is at these low year over year levels. We are tentatively bullish across all time frames and hope to see US$400 broken in the near futures as it rallies to US$450 and perhaps even US$500 into year end.
Two scenarios in order of higher probabilities
Bullish: Since the overall case is bullish, it might be more fitting for the first alternate scenario to be simple consolidation into Christmas. There is a very likely chance that price will remain between US$375 and US$425 for a decent amount of time.
Bearish: The descending trying is still not something you want to see on a daily chart. It is suggesting a price drop to just under US$300. We would need to rise above US$400 in order to remove this possible target from our charts.
Two weeks of stable prices in the US$375 range have finally shown its colors and it was once again a disappointment. The Short-Term chart at the end will show the clearest picture as the 50-day SMA played a major role in the last few weeks. Since Mid-July as the price fell below this average, it has been the perfect indicator and other than a trader induced rally in early November creating a big head fake that threw charting in disarray, it might once again be indicating lower prices. As important as the Microsoft news was for the technology industry in general, it was simply a small bump up that has already been neutralized by selling pressure.
Let’s glance at the long-term chart, which has been pretty uneventful over the last few weeks but it should indicate a direction fairly soon.
The chart is technically still Bullish, but it is not at all encouraging. We are now sitting near the lows from the day we broke above the descending trend-line. If the price does not rebound higher soon and we fall under US$340, it can get ugly in a hurry. That same descending trend-line could act as support but with every passing week it gets lower and lower and is starting to suggest that we could fall back into the high US$200’s.
Today’s Technical Analysis sections will be short and sweet since there is plenty of news to get to and it is pretty basic in nature. Bollinger Bands rely on a statistical calculation known as Standard Deviation, which is a measure of Volatility. In a way it’s a dynamic view to identify oversold and overbought points based on the prior history of price swings.
You might see Bollinger Bands used quite often in standard technical analysis, but in reality it is a very tricky indicator. Yes it will point out the obvious as to when an asset is at levels of high volatility vs. low, but traders use it in very different ways. In the chart above the line in the middle is usually referred to as the middle band and represents a moving average (typically it’s the 20-day Simple Moving Average). The upper and lower bands are usually 2 Standard Deviations from the mean but they can be adjusted to fit the asset being traded.
So how helpful is it? Well, this is where this indicator can get traders into trouble and why it should never be used in isolation. Some will consider buying the asset once it hits an oversold level expecting a bounce to end once it hits an overbought level (and vice versa). Others like to trade in the direction of the band and quite often once the asset hits the upper or lower band, it tends to ‘ride that band’ for an extended period of time. Also in many instances, as visible on the chart above, an asset can constantly bounce around between the Middle Band and one of the extremes.
You can learn more about strategies of trading using this indicator from Chart School or other sources, but the recommendation from this trader is never to use it in isolation. It is a good way to visualize the volatility of an asset and unless it has historically been consistent on something that is clear as day, just save it for informational purposes only.
Once again there has been plenty of news and as usual we present 3 good roundups for those too busy to keep up with it all:
The obvious place to start is of course Microsoft. Their innovation days are long behind them (Apple is getting there) so it is fitting that they would dip their little toe into the Bitcoin infused water for some PR and first hand experience in the decentralized future that will one day hit these tech giants like a ton of bricks.
Fortunately for the world Bitcoin is not some start-up that can be bought or taken over. As for this news influence on price, think PayPal announcement but smaller, since this will only apply to the App Store. The initial pop was in line, though it was very disappointing that it only moved the price up a max of 8%. Even the futures exchanges were up to US$380 so there was definitely a higher expectation. In the intermediate term, this move is somewhat bearish for Bitcoin since just like most companies they will simply convert to fiat currency on the open market, but in the long run, it does make it easier to convert the public and make them more comfortable with Bitcoin.
Let’s just be ‘frank’ here, until more companies actually embrace bitcoins and use them in the way they were intended or the European Banking crisis is on the front pages of the papers once again, Bitcoin will continue to struggle on every level.
The rest of the news is not as critical, but some less popular stories definitely stand out when reading between the lines. LocalBitcoins closing their doors in Germany is a bad sign. They do not even sell bitcoins: all they do is connect buyers and sellers and if it’s that easy to scare a website, it’s a giant cry for the creation of an entirely new ‘decentralized’ internet structure, but most readers of articles like this already know that.
The SEC now smells blood as they have found an entire industry to fine and justify their existence. Imagine a situation where the SEC would go after a traditional fiat company; fine them every penny of profits the company has ever made and then another fine on top of that. Perhaps there were users defrauded by these entities, but I definitely don’t recall that to be public news. It’s always a mystery where the profits from these fines go because they sure do not go anywhere useful. For more on these types of situations, it’s strongly encouraged to watch the following investigative report into Civil Forfeiture.
Russia is once again in the news in an interesting way. It was mentioned here a little while back that problems in Russia will not be enough to generate mass adoption because it does not have the right middle class and that the rich have plenty of other means to move their money. However, the country is turning into a very interesting use-case. The trading volume in Rubles is way up as you can see form the chart of LocalBitcoins below, which once again proves that banning something will only peak the public’s interest.
Looking at the chart above, you still have to consider the fact that the Russian Ruble is equally crashing against other currencies though the move is not as dramatic in terms of bitcoins as it looks. Russia seems to have taken the rout of ‘we are saving you from losing your wealth,’ which is only ironic on two fronts: the fact that the value of the Ruble is crashing way faster than Bitcoin since the summer (mostly due to the crash in Oil Prices) and the other irony is that in order for them to make sure you maintain your wealth, they are going to fine you up to 1 Million Rubles.
The ultimate irony would have been for them to announce Bitcoin is a way for criminals to have a tax heaven while at the same time making a statement allowing ALL capital to come back to Russia no questions asked. This concept probably deserves its own article centered on economic theory and if only Russia had this policy for the last 5 years, they would be in a much better economic position today. This is a step in the right direction but it might be too little too late.
“Governments, all governments, will always do whatever is necessary to increase their power over the people and maximize revenue confiscation.” - Tone Vays
“Governments, all governments, will always do whatever is necessary to increase their power over the people and maximize revenue confiscation.”
- Tone Vays
Using the simple quote above as your guide for all countries going forward in relation to economics, Russia, like all governments, does not care bout the financial well being of its people so fining Bitcoin users is just another way to increase revenue. On the other hand, allowing tax heaven capital back within its borders no questions asked is a potential chess move for the upcoming financial crisis in Europe. The day the Swiss gave up the names connected to their numbered bank accounts was the day that country rendered itself useless to the world.
There was a reason why Switzerland was left alone by all sides during World War II and that reason no longer exists. Privacy is way more powerful than today’s Facebook/Instagram generation realizes with statements like “we have nothing to hide.” So if that’s Russia’s longer-term set up, the short term once again comes down to money. If the announcement is to be trusted and capital begins to flee to Russia, it can really put the breaks on the Ruble’s demise and create much needed economic activity.
The little island of Japan with virtually 0 natural recourses had an economy close to all of Europe and Russia combines at one point not too long ago, so those that chose to ignore global capital flow will never understand real economics.
As a final note of things to keep in mind thinking about Bitcoin, the transaction volume continues to creep up and last week reached a new all time high at over 100,000 (excluding popular addresses). This indicates that we have now reached over 1 transaction a second and things in the Bitcoin world get real interesting when we reach the theoretical limit of 7 transactions a second. It is definitely an issue that needs to be addressed sooner rather than later.
“The greatest shortcoming of the human race is our inability to understand the exponential function” -- Dr. Albert Bartlett, Mathematician
“The greatest shortcoming of the human race is our inability to understand the exponential function”
-- Dr. Albert Bartlett, Mathematician
With all that in mind, let’s have a look the year to date chart.
We are sitting right at the bottom of a bullish channel that started in early October and identified itself about 3 weeks ago. Time is starting to run out on any kind or rally so it is really now or never. We have good support at US$340, which has been mentioned in this series on many occasions.
The longer we flirt with danger, the higher the chance the bottom is ready drop out. Ever since the big rally that took down the BearWhale and one additional rally driven by leveraged traders, most people including this analyst had some hope that end of year might amount to something. At the moment, all that hope is on the brink of being completely eliminated. There is very little positive left in the charts if the US$340 is taken out and in general, there is not much going positive for Bitcoin’s adoption. We might just have to tread water until the investable European Banking crisis brings on a massive wave of new users.
The Short-Term zoomed in view is showing that we are still in the middle of a small bounce from last week’s US$340 low. The affects of the 50-day SMA in Blue are very clear, and this average has once again started trending down. You will also notice the Bollinger Bands explained earlier and they are indicating that we are at a point of low volatility and there is a high chance that we should bounce at least into the middle. The RSI has fallen below a trend line but is nowhere near oversold conditions.
We are on the very edge of turning fully bearish for the near futures. At the moment the short-term view is set up for a small bounce to the US$365 levels, but after that we will most likely see more downside. The intermediate term view is sitting right on the edge and we would need a break back to US$380 and above next week to change that - US$340 is the critical number to watch.
Two scenarios in order of higher probabilities:
Bearish: US$340 is our line in the sand and any breach of this level in the very near future is an indication that we can see US$300 in a hurry. The descending triangle target is still out there at the US$290 level.
Bullish: Unless you see some major problems in the fiat banking system, there is not much to be happy about. The Microsoft news took us off the US$340 bottom and got too as high as US$365, which is now also the level of the 50-Day SMA. Any talk of a rally will start with a break of this price level. Above that we have resistance at US$400 and US$450.
Reference Point: Sunday Dec 14 11:45 pm ET, Bitstamp Price US$350
Tone Vays is a 10 year veteran of Wall Street working for the likes of JP Morgan Chase and Bear Sterns within their Asset Management divisions. Trading experience includes Equities, Options, Futures and more recently Crypto-Currencies. He is a Bitcoin believer who frequently helps run the live exchange (Satoshi Square) at the NYC Bitcoin Center and more recently started speaking at Bitcoin Conferences world wide. He also runs his own personal blog called LibertyLifeTrail.
Disclaimer: Articles regarding the potential movement in crypto-currency prices are not to be treated as trading advice. Neither CoinTelegraph nor the Author assumes responsibility for any trade losses as the final decision on trade execution lies with the reader. Always remember that only those in possession of the private keys are in control of the money.
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