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Bitcoin Analysis from Tone Vays.
Note from the Author: Please see (@Tone_LLT) for more timely updates throughout next week on price developments and latest charts.
The downward trend started in 2014 continues with Bitcoin hitting a new 14-month low of US$255. The situation looks like some time down the line a full-blown Bear market would be triggered, but it all depends on the global financial landscape. The positives come from Europe with its currency meltdown and California which has acted pro-Bitcoin recently.
Last Week we concluded with the following:
While we acknowledge the fact that Bitcoin has made it so far in the last several years that if you had bought it 2 years ago and just now decided to take a look at the price, you are extremely happy, and it’s the only reason we remain Long-Term optimistic. As for the Daily charts, everything is looking like an imminent collapse under US$300 reaching a target suggested in mid-November of US$290 (Even though this analyst took this target off the table in late November when we started closing above the 50-day SMA). The additional target as of today is in the US$270-275 range which will match the 2014 lows and the highs set during the Cyprus crisis back in April 2013.
Two scenarios in order of higher probabilities
Bearish: Even though the primary case is already pretty bearish, we have to pay attention to a complete and utter disaster at this point. The breakdown of the bullish channel that was developing for several months is calling for a lower target of US$250 and if we go into that zone, there is no support and we can see US$200 or lower in the blink of an eye as panic selling sets in.
Bullish: Not much to cling to here, but we will consider a breakout back to the US$350 area as a possibility. It will not be anything to write home about and will most likely present a selling opportunity…
The collapse in price wasn’t as imminent as last week’s analysis warned, but the results 5 days later turned out to be exactly what the technical charts predicted. The target of US$290 suggested by the Descending Triangle in November was met and within 24hrs of this, the US$270 target from the triangle in December was also surpassed. Now that we hit a new 14-month low of US$255, the question everyone will pose is, “are we ready to turn and hit the moon”?
As usual we will look at the weekly chart, which is the only one left where we can point to some positive signs.
We have now officially hit the top of the falling trend line. On the Long-Term chart it is really now or never for a reversal before a full-blown Bear market is triggered. Again it probably seems strange that something can be down over 70% from the high and still be considered in an uptrend, but that is what happens when 2013 creates a 6,000%+ return. We will give this the benefit of the doubt hence the tentative upwards arrow in the chart but there is definitely plenty of room to fall here and not much support in place other than the round number of US$200.
As usual we present 3 good roundups for those too busy to keep up with it all:
This was an interesting week for news. It seems like “scammers” is word of the week as we first found out the obvious in the fact that Mt. Gox was never really hacked and it was most likely an inside job. In the long run it should not really matter because anyone who lost more than 10% of their bitcoins in that fiasco only has themselves to blame.
Then we had issues with Bter being exposed for pumping coins, but the real outrage came at GAW Miners and their venture into the altcoin space with PayCoin. The PayCoin news is really interesting and at the same time frightening as people still believe there is a magical crypto that will solve all the world’s problems in a single day and it will immediately be better than Bitcoin, which took 4 years to build a reputation to be remotely credible.
Once again most of the blame should fully fall upon those who bought into this coin at $20 and then again at $15 and again at $12 and so on. It’s probably too early to tell whether it was a scam or if the developers really believed it was something special. Just look at Aurora Coin as something that once reached unbelievable prices only to eventually become nothing and not much about it seemed like a scam; it was just a project that did not work out. Perhaps Jeffery Tucker said it best in his recent write-up “The Theory of Scams”, when he said that when scammers stop trying to take advantage of the technology, you should be really scared about its relevance and future. Scammers are usually some of the smarter guys in the room and if they are still going after bitcoins, that is actually saying something.
As for some good news this week, it was a little strange to see a very socialist-leaning state like California be proactive in Bitcoin acceptance. I did not see that coming out of one of the most over-regulated and over-taxed areas in the US but perhaps the Silicon Valley Tech scene had a lot to do with it. It definitely is the best place for Bitcoin entrepreneurs with NYC probably coming in a distant second. Some additional good news is that ChangeTip is looking to spread Bitcoin acceptance within other social media like Facebook.
Now that a disastrous 2014 from a price perspective is over, let’s look ahead to 2015. Already we are starting off on a tough note as we watch the price crash to new lows in the mid US$250s. It’s really hard to believe it because 2014 can truly be considered the year of adoption as numerous companies big and small began accepting Bitcoin, and it ended the year in the national spotlight sponsoring a College Football bowl game.
2015 should be an interesting year. At the moment there is not much positive going for Bitcoin in the form of mass adoption. Everything that is coming out is mostly for the benefit of those who already have bitcoins. The real challenge is to get the average person to buy into this new wave of technology. The problem shows up in the battle between privacy/independence vs. convenience.
Many in the Bitcoin space are now saying that the only way it can succeed is if it embraces the current financial system and integrates, while the original Bitcoin fans want nothing of the sort. This is causing a bit of a rift within the community and the tide will sway based on the health of the fiat financial system. This is where the real prediction needs to be accurate since nothing in the blockchain world happens in isolation and it is still dependent on the global landscape.
So here it is, the best hope Bitcoin has to actually hit the moon as far as price goes is for a complete meltdown in the European Banking system, which looks like something which is bound to happen by Q4 2015. It’s tempting to say the United States financial system will break but compared to the rest of the world it is actually in far superior shape. With the US Dollar reaching all-time highs it can start to bring devastation to the rest of the world, especially to those who decided to issue dollar-denominated debt. Bitcoin will be a major beneficiary as global capital flow begins to move to the United States. If a respective government attempts to fight this capital flight, Bitcoin will be an attractive alternative – not only as a means to move money cross boarders, but also as a store of value that cannot be confiscated by broke governments.
On the regulation front, they are getting scared, very scared. Even as the price is crashing to a market cap of under $3.5 billion, so that in reality about 500 people have more money in the bank than all bitcoins in circulation, Bitcoin is getting an insane amount of attention. This will come down in two forms as Bitcoin threatens current economic models in two ways. First is the stable money supply, which can’t be manipulated by those in charge. Second is the semi-anonymity aspect of transactions and that is the one the current NSA-cheering establishment cares about way more. Everything will be structured to identify users and track every Satoshi, mostly for tax purposes. Look for all favorable regulation to come with non-anonymity strings attached.
When the financial system starts to crumble they will try anything they can to prevent mass chaos. Infinite money printing along with the gold standard and even digital currencies will be valid options on the table, but giving up control over the population will not be up for debate.
As for a general price trend, there is a higher than likely chance the US$255 price was not the bottom for 2015. We still have not seen panic buying and there are not enough headlines proclaiming, “Bitcoin is Dead.” Most likely it will come in the low 200s and perhaps even dip into the 100s. If that does happen, look for massive mergers and collapses in the Bitcoin industry, and hopefully good things will come out of it. Bitcoin has two more years to prove it is something that can help the world economy and more importantly be something people can trust. In the next two years we will see political change, the likes of which this generation has not experienced, and before the block reward splits again it needs to worth something the miners are willing to work for. For now, there is still some room for volatility.
Here is the usual one-year look back using daily candles now referencing the most liquid exchange Bitfinex.
As you can see from the chart, the breakdown from the bullish parallel channel is suggesting quite a low target. It does not look like we will get there on this round of selling and let’s hope we never actually see US$225, but it is something to keep in mind. Other than looking massively oversold for the time since the Bear Whale week, there is not much positive to cling to in this chart. There is plenty of open air on the way down so for those going long here, definitely keep some tight stops in mind. Due to the massive oversold conditions we are leaning bullish for the time being which is why the green up arrow is drawn thicker in the chart.
The short-term zoomed-in view is clearly showing that the Descending Triangles breakdown suggested last week was realized in almost a textbook fashion. We have to say “almost” because there was a very slight head-fake giving the impression of a break to the upside, which quickly reversed to the expected direction. Now the RSI has reached oversold levels and there are no more bearish targets to reach according to this graph. This is also only the second time we have fallen more than 25% bellow the 50-day SMA. All the other similar extremes during this latest downtrend have been followed with significant counter-trend rallies.
It is impossible to say at this moment whether the US$255 low will be it for the year, but it sure does not feel like it. The US$275 low in October had a stronger reversal so most likely we will see lower lows in the very near future. For the time being however, this oversold condition needs to be relieved so a bounce here back to US$300, US$315 (point of the breakdown) and even US$330 (50-day SMA) is the most likely outcome.
Two additional scenarios in order of higher probability:
Bearish: Since we are looking for a bounce to at least US$300, the move is proven wrong upon visible new lows. Now that we have even established US$260 as a short-term higher low, those looking to pick up bitcoins here have a line in the sand they know proves the reversal false. If new lows are created, then it’s open season on the panic and we can see US$200-225 very quickly. There is really nothing technically stopping the slide right now from reaching much lower levels. This situation is the result of going straight up from US$85 in October 2013 to over $1,200 just 2 months later.
Bullish: Nothing really bullish to consider. Best case scenario right now is to reach the 50-day SMA which is dropping quickly and should be at US$330 in a few days. Unless the euro implodes or Amazon and EBay choose to accept only bitcoins with no conversion to fiat, let’s just hope for some stabilization before dreaming of the moon.
Reference Point: Sunday Jan 4 11:00 pm ET, Bitfinex Price US$270
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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