Note from the Author: Follow me (@Tone_LLT) for more timely updates throughout the week on price developments, latest charts and overall Bitcoin news commentary.
Last Week’s Review
Last Week we concluded with the following:
We are turning short term Bullish here and are looking for prices to rise back to the vicinity of the breakdown level of US$250. When we get there, the most likely outcome would be more downside and if this downside has a quick reversal above US$200 we might be able to finally call the low.
Two scenarios in order of higher probabilities
Bearish: Since our primary case is bullish, we are keeping an eye on the opposite move. The prices have hung around the US$190-200 zone long enough that we can consider that area our new line in the sand, a break of this zone at this point, will most likely retest the lows in the US$150 are.
Bullish: Unless some major EU bank collapses next week sending half of Europe’s wealth into bitcoins, don’t expect much and US$250 would be a nice start. A break above that takes us to the 50-day SMA quickly moving down but currently stands at US$290.
As you can see, the move was exactly as expected and in addition today added another 20% to the price of bitcoin at its high. At the moment it is very hard to make a call as to what we can expect next week. Nothing, not even Bitcoin goes up or down in price forever so we will need to make a call if we have just topped out, or are we just getting started.
As usual we will look at the weekly chart for a long-term picture
Looking at this chart, it is obvious that the move over the last few weeks has been very strong. The candle two days ago is a borderline hammer, defined as a longer wick than body (just slightly shorter in this case) coming at the end of downtrend with high volume and price reversals.
So far so good and this move has just completed the pattern now that we are sitting above the US$275 mark. You will also notice an additional trend line coming from nowhere. This trend line is connecting the bottom points from late 2011 to early 2013. It shows us that we are perhaps right where we should be historically and this recent move might have been the overshoot and capitulation some were calling for.
Fundamentals & News
As usual we present 3 good roundups for those too busy to keep up with it all:
Weekly News Roundup by Brave New Coin
The big news this week was Coinbase on multiple fronts. Their partnership with PayPal’s BrainTree is finally ready for prime time. We also learned this week that they have secured a monster $75 Million funding round and as of 5 minutes of writing this, we know why they got so much money. Coinbase has just announced the plans to open the very first US regulated Bitcoin Exchange.
As most readers know this analyst is not a fan of Coinbase on several fronts. They are a US based company and in order for them to exist, they must comply with US laws of citizens’ financial surveillance and hence have full control of a user’s bitcoin account with an ability to freeze it or shut it down. This recent news should of course come off very positively in light of all the scams and issues with exchanges, but in the long run, the jury should still be out as to whether Bitcoin’s future should be fully dependent on the exchange with the most funding and law compliance.
Everyone always complains about Bitcoin’s volatility yet somehow many are starting to cheer that Wall Street is about to get involved. Bitcoin is still trying to find its identity. For some reason, however, most people try to ignore the political implication that Bitcoin brings and that is going to be the 800 pound Gorilla that will not be regulated away. The current problem with all these exchanges is that they have independent pools of liquidity, which are not even that deep. If Wall Street is able to come up with one exchange to rule them all, what happens to bitcoins independence? We will just have to wait and see.
In the mean time, it is still advised for those looking to get their hands on some bitcoins to buy it using the one and only king of Black Market & Tax Evading practices: good old US Dollar Bills. One day when the function of Local Bitcoins is deemed illegal (for your own protection of course), you will be glad you have some bitcoins tucked away for a rainy day.
In other news, Bill Gates was on late night television promoting the idea and functionality of the Blockchain. Once again we will fall into the same predicament as any other US Company in terms of the difficulty to admit the existence of a surveillance state. While the majority of Americans (and even the World) have gotten used to it, the cracks in US global domination are starting to form and over the next few years more and more pushback from US citizens and international governments over the surveillance state will emerge.
Also, sticking with our global trend, the Greece elections are over and the leftist (or one step away from Communists) patty SYRIZA has won the election. It is very easy to see how they pulled it off; the vote was coming down to all the ‘extreme’ political groups since they are the only ones with the stones to stand up to the insane economic policies of the EU. This will have huge consequences as Greece will now look to exit the Euro (unless these new heads of state can be bribed with Euros like the last bunch, which is of course likely). This will also put pressure on the entire Eurozone as the confidence in the Euro (aka European Government) begins to weaken even further and there will be many regions looking to follow in Greece’s footsteps. This is of course very bullish for Bitcoin, which we will get into next time.
“Bitcoin does not need a Wall Street operated exchange, it just needs people to realize what Governments are doing to them economically, EU citizens are on deck.”
Education (Spotting a Trend Change)
Identifying a long-term trend change is not easy. It is even harder in Bitcoin as oppose to traditional markets like stocks and commodities. Most people use a 3-step process
- A break of a trend line
- A move in the direction of the original trend creating a higher low (or a lower high)
- A big move in the direction of the new trend creating a higher high (or lower low)
The reason we bring up this topic today is that Bitcoin might be on the verge of a major trend change. The move from the US$166 low to the US$298 high as of this writing definitely qualifies as a notable move breaking whatever downward momentum there was. We are now looking for Step 2.
In the current case in regards to Bitcoin, we would like to see a move down of about 50-100 points. Then Step 3 would be an even stronger move than what we just had in Step 1. So if we did just top out at US$298 and fall down to say US$250, we would keep an eye on a strong reversal taking us all the way to US$400.
Also if you look at the Daily Chart of Bitcoin below you will notice a perfect 1-2-3 pattern taking place from early October into Mid November giving the impression for a minute that the year long bear market in bitcoin is finally over. Let’s keep an eye on the trend reversal pattern this time, and based on volume, it definitely has a greater chance of success this time around.
Here is the usual one-year look back using daily candles.
Today’s move has really been something; we broke through the horizontal resistance of US$250 and flew all the way to US$300. Obviously this is a good thing. Based on the 1-2-3 reversal pattern above, we were initially looking to top out around US$250 then coming down to test the US$200 area and then attempting to reach YS$300.
Today’s move has given the bullish case much more breathing room and we can now pull back from here to the US$250 area instead and then look for the move up. Trying to guess the top is also very dangerous because there is nothing stopping this momentum to keep going for an entire week.
The Short-Term view is a little less rosy. It is showing the price is a bit overbought and is currently stuck right at the 50-day Moving average. The RSI has also hit the bottom of our trend line. While the other momentum indicators have room to run up, it would really be ideal for everyone in the bitcoin space to take a breath and absorb the latest round of news.
You will also notice how this chart has an Ascending Triangle with the target already reached. This pattern was mentioned last week but was not drawn. However, those following on twitter @Tone_LLT would have noticed it on the chart the day after the article was published.
Last week we turned short term bullish, but thanks to the move being this strong, we are now turning bullish across all time frames. However, we acknowledge the fact that nothing moves up or down forever and are keeping an eye on a pull back to US$250 or perhaps even a bit lower. Because of the highflying action, it is not advisable to short this move even if prices do what we expect. As hard as it is to say, for those that missed this move up, chasing higher now is not a wise decision and neither is trying to guess the top of this news driven rally looking to profit from a counter trend pull back. The US$260-$290 zone should be treated with care.
Two scenarios in order of higher probabilities:
Bearish: We over shot the 50-day SMA and at the moment sitting right at it at $US383, look for a pull back to US$250 or even as low as US$200 followed by a strong rally to new highs probably on the heels of some more good news or the breakup of the Eurozone.
Bullish: Bitcoin has a way of making fools out of experts and now that many have given up on the currency aspect of this technology, it is a perfect time to trick everyone again. There is open air to US$340 and it can get there in the blink of an eye just like the two-day crash two weeks ago. Above US$340 we are looking to hit the 200-day SMA currently at US$385.
Reference Point: Tuesday Jan 26 1:00 am ET, Bitfinex Price US$285
About the author
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 Cryptocurrencies. 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 cryptocurrency 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.