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Tone Vays is a 10 year veteran of Wall Street, who was kind enough to provide our readers with a series of articles about technical analysis of Bitcoin price.
Bitcoin price analysis
Bitcoin price prediction
Price, Bitcoin, analysis, index, charts, exchange, news
As a follow up to last week’s higher-level overview, this week we will take a closer look at Bitcoin’s price and introduce a Daily Pricing Chart. Before diving right in, it’s strongly recommended for the readers to take a look at Investing 101: How to Predict Bitcoin’s Price.
Armand Tanzarian makes several good points that anyone trading with a high emphasis on technical analysis must keep in mind. This weekly series is meant strictly as a guide and NOT a short term trading tool, which is why we will have a bigger focus on longer time frames. We will also attempt to educate readers that are not familiar with technical analysis and make sure they are more comfortable looking at these chart a few months down the road. This effort will start next week when we do a quick overview of Candlesticks.
An updated weekly chart is below (we added some news events and moved the two Green and Red Arrows slightly to the right)
The view from last week has not changed; we are still looking at resistance in the US$628-630 range and even though the price has pulled back a little bit to US$605 at time of writing, the targets have not changed. The more probable scenario is the price breakout over US$630 and reaching US$750 is still ideal. However, last weeks statement quoted below is perhaps increased its changes slightly.
There is also the possibility of a rejection at these levels sending the price back to the 61.8 level of US$500, but technically this is a less likely scenario and would only be considered once the price drops below US$600. As long as it can stay above US$500, the new upwards trend will remain strong.
The price briefly dropped below the US$600 mark, but it did not stay there so at the moment we are treating it as a nice round number support level. Looking at weekly charts gives analysts much more flexibility in ignoring daily price swings so as some articles are scrambling for explanation, we can simply step back a bit and re-evaluate our near term expectations if necessary.
Unlike the Equity world, judging Bitcoin’s fundamentals is completely different. There are no Earnings, Debt Levels or CEO scandals to worry about. What we do have are news events and it’s the interpretation of this news by the Bitcoin holders that matters. Important news can generally be summed up by these 5 categories and each one can swing the price in either direction:
a) Core Developer – Very rare news event, but important. If a famous developer is to join the team (huge bonus points to anyone reading this and can name one off the top of their head), that would be good news, if they are leaving because they are hardly making any money by doing something this important, then perhaps this would not be be good. What happens if there is a problem with the code? Is confidence lost? What if it’s solved quickly and the code is clearly stronger for years to come? This situation is hard to judge.
b) Miners – Since they are the invisible grease that makes the engine run, seeing news articles about them is generally not a good thing. Most recent example is the GHash taking over 50% of the network though those fears have subsided quiet a bit lately.
c) Crypto Currency Companies – It’s important to pay attention to what is happening with Bitcoin innovation like Dark Wallets and New Exchanges that offer derivatives as well as catastrophes like Mt. Gox (which might not have been all that bad for the ecosystem as it allowed for the complete removal of an inefficient and likely fraudulent major institution . With no consideration of a bailout, perhaps the Fiat Finance world might learn something from that). It is also just as important to watch news from Alt-Coins because AOL and Yahoo probably did not see Google coming, and anyone over 30 should certainly remember MySpace. On the opposite side of the spectrum we need to consider problems discovered in some Alt-Coins as these issues might some day also threaten Bitcoin.
d) Traditional Companies Views on Bitcoin – This is generally good news as more and more household names embrace the Bitcoin ecosystem, but some may resist and come out publically explaining why they do not believe in it. Luckily there have not been many companies that have abandoned Bitcoin after initially accepting it. (Exceptions considered for companies like Baidu, which had to stop due to political reasons, as the same can be said right now in the situation with Latvian Airlines)
e) Government Interference – this one is saved for last because it is the ultimate wildcard. This type of news will be the hardest to judge because for every Bitcoin purist that just wants government to get out of the way, there is at least one that wants official legitimacy before buying a bitcoin, safety for themselves and their employees at Bitcoin companies by knowing they are within law compliance, and those looking for government help keeping their business at the top by creating barriers to entry.
Nothing from Development or Miners, which in turn can be considered Good News.
The Ethereum crowd sale is going well as it’s now up to over 7,000 bitcoins in conversions while Storj still has a long way to go over the next 25 days in their goal for 9,800 BTC. Are some of these coins hitting the open market for more additional selling than usual?
On the Traditional company front, the big news was Dell of course. Here too there needs to be a balance between the additional exposure added to the system vs. the liquidation of bitcoins by Dell from all those new customers who were just looking for something worthy to spend their coins on.
So this leaves us with the big wildcard of the week. The NYDFS first draft proposal for BitLicenses, which at the moment are still impossible to judge. This proposal may have major changes before it is final and no matter how hard some of us wish governments would just let this technology develop, many on Wall Street will be happy and might use this as an opportunity to finally jump into the space.
So now let’s take a look at the daily chart for the last year. Since this is intended to be more of a guide then suggesting speculational entry and exit points, we should be less concerned with daily swings of a few percentage points. Some of the more interesting areas are labeled on the chart and briefly explained below.
This Chart probably look busier than it should and most people reading this are not expect to understand it all yet. The goal will be to make you comfortable with these charts. The Trend Lines should be pretty straightforward but in case anyone is wondering why there are two Green Trend Lines on the chart, the answer is that people draw them differently. When it comes to Trend Lines, they are more of a tool for a self-fulfilling prophecy, and the moment they become obvious to everyone, they usually break down.
They are meant to be drawn as thick lines to allow for some price flexibility around them, and because some people like to draw them off of daily lows while others off of daily close prices, we must respect them both. The rest of the chart uses Fibonacci Retracements, which are a more advanced system to be explained in future posts. For now, think of those horizontal lines as magnets that can Repel, Attract, or be Ignored if something is coming in with some serious momentum.
There are two of these retracements drawn on the chart: One from the Silk Road closure low to the All Time High and the other from the All Time High to the 2014 Low in May. These will be our points of interest and the shaded zone between US$620 and US$650 is currently serving as significant resistance. The chart implies that there is a higher likelihood of prices to continue going down into the support area of US$500 to $US530.
As long as that zone is not broken to the downside, the Trend Change that started in May remains in tacked. The less likely scenario on this daily chart is the near term break of current resistance sending price to US$750 which is a point of interest on both retracements (50% line as seen on this new Daily Chart and the 38.2% as seen on the Weekly chart).
Our charts are conflicting; the shorter daily chart is implying continued bearish pressure, as the bullish trend line was broken this week. The longer-term weakly chart on the other hand is not suggesting anyone should panic just yet. Watch for a pull back to the US$500 to US$530 zone while still keeping your eye on the target of US$750. Once one of these zones is approached, we would look to re-evaluate the situation.
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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