Price Analysis Archives

Investors Rush for the Exits as China Moves to Halt the Rally in Bitcoin

Posted on January 10, 2017 | by [email protected]

Bitcoin recorded a surprising crash on Thursday January 5 to halt the expectations that the cryptocurrency will continue its rally to surpass its previous all-time high. Bitcoin had already crossed the $1,100 threshold and it was nearing the $1,200 threshold before it lost its footing. Bitcoin almost dropped to $800 on January 7 and it currently trades around $908 as at 9:27AM EST today.

Many people have tried to find out the reasons for the short-lived rally in Bitcoin prices. Interestingly, the prevailing opinion in the market submits that the People’s Bank of China is behind the unexpected crash in the price of Bitcoin. This piece seeks to examine how China unwittingly orchestrated the crash in Bitcoin prices.

Here’s how China ended Bitcoin’s rally

Bitcoin is already taking up position as a cryptocurrency that could displace troubled fiat currencies and end government interventionist monetary policies. Last week, we wrote on how Bitcoin is already building momentum to displace the Bolivar in Venezuela. Well, the People’s Bank of China made a preemptive strike to ensure that thoughts to use Bitcoin in place of the Chinese Yuan don’t begin to take root in China.

The PBC issued two notices from its Beijing and Shanghai branches emphasizing its position on Bitcoin’s place in the economy. The PBC noted that it considers Bitcoin as a commodity and not a currency and that investors should only trade Bitcoin with the understanding that it carries investment risks. The PBC also requested meetings with Bitcoin exchanges to encourage “self-examination” in ensuring that exchanges stay within the ambits of regulations and that they are managing risks properly.

The more troubling development that caused the price of Bitcoin to tank is the revelation that China’s foreign exchange regulator SAFE was investigating the use of Bitcoin in avoiding capital controls on China. Beijing has placed strict capital controls on the inflow of funds in and out of China but speculators believe that China’s wealthiest are using Bitcoin to bypass those capital controls.

In fact, a decent part of the rally in Bitcoin was fueled by the rumors of an increase in Bitcoin adoption amidst China’s wealthiest. In essence, moves to investigate the use of Bitcoin to evade capital controls could be a precursor to a clampdown on the use of Bitcoin in China. A clampdown on Bitcoin use in China could result in losses for investors; hence, many people have started unloading their Bitcoin holdings.

OKCoins thinks the Bitcoin should be regulated in China

Leading Bitcoin exchanges in China are supporting the government’s plan to push more regulations through the Bitcoin industry in the country. OKCoin is the second-largest Bitcoin exchange for CNY Bitcoin-trading in China – BTCC leads OKCoin in 7–day-volumes. OKCoin revealed that it had had dialogue with the PBC on its plan introduce a third-party platform. The firm however notes that the PBC is yet to make a decision on creating such a platform.

Nonetheless, OKCoin CEO, Star Xu observes that regulating the Bitcoin industry could benefit all stakeholders and that the panic selloff in Bitcoin is unwarranted. In his words,

“The industry can benefit from balanced, risk-based regulation and oversight and we look forward to further constructive discussions with the regulators and industry participants.”

Why Bitcoin Price drop shouldn’t be a surprise?

Posted on January 9, 2017 | by [email protected]

2017 started with a dream Bitcoin Bull Run with the cryptocurrency prices surging towards the all-time high. Before bitcoin enthusiasts could cherish the currency peak, there was a sharp drop in the price taking the currency back to $900 levels. Most people were shocked and disheartened about the abrupt shift in market dynamics. Market players started scurrying for reasons and comforted themselves with the circulating rumors involving China’s Policies. While it is true that China has always been a major influencer on Bitcoin prices, it might not be the driving factor here. Let’s look into why Bitcoin prices were bound to fall at peak levels and what would be the trajectory from here:

It’s all technical:

Bitcoin market has always followed the standard rule of currency markets: market trades all the regions adequately before moving to higher levels. It is very important to keep this in mind as market has always come back to trade low volume regions before resuming the Bull Run. This was evident when market went from $700 to $800 level and crashed back to compensate the lack of volumes.

Similar to that swing, market went from $900 to above $1000 with scanty volumes. Hence the crash was expected and the market came back to trade the low volume regions.

The peaks are always sloppy:

The prices have been bullish for most part of last year and the market has been trending. The only way this could have been halted was the effects of strong, long term and negative fundamentals. This happened for a brief period in 2016 when China announced capital controls on Bitcoin which lowered the prices. Later the sentiment settled and the market became trending in bullish direction.

When the market approached the peak for the first time in three years, the apprehension surrounding the speculation became very intense. With low number of buy orders at the top, traders and programmed algorithms can be set into a sell mode with little panic. With unstable market dynamics, the rumor acted as a catalyst for the quick crash.

What’s next?

Following the pattern, the market has consolidated at 78% Fibonacci Retracement level. Algorithms are coded to have strict adherence to these levels. Infact quick acting algorithms would be reason for the crash of the market which ignited a sell off. These $900 levels would be a better entry position to set oneself up for long-term trades. If the all-time high breaks, the market is bound to go very high with good volumes and strong support.

Bitcoin Price Analysis: Could rising interest rates threaten the uptrend?

Posted on October 3, 2016 | by [email protected]

After riding high on fundamentals during September, Bitcoin has had a positive start for October. The price remained fairly over $600 in September with the fag end of the month testing heavy support around $595. After the rebound from $595, the price has now rallied to over $610 over the weekend. While the setup looks bullish, let’s look into the price analysis for October:

Fundamental Key Points:

The adoption of the cryptocurrency and its underlying technology has always been the fundamental positive for the Bitcoin ecosystem. Here are few highlights of the past month fundamentals that might continue to have a prolonged effect on the prices:

Blockchain Firms Axoni and R3CEV’s Data Management Trial for 6 Major Financial Institutions
Winklevoss Bros’ introduction of daily Bitcoin auctions and Gemini’s expansion to Hong Kong and Singapore
US Congress calling for a legislation to regulate Bitcoin and Blockchain Technology
Deloitte coming into the Bitcoin scene with the launch of a Bitcoin ATM
UK to amend laws to accommodate Digital Currency Exchanges

Any continued activity pertaining to the above key points is sure to have an impact on the prices. Adding to the above, from a macro perspective, rise in interest rates might boost the prices of Bitcoin. Nevertheless it would also depend on the timing of the news release and the trading prices at that point.

Technical Analysis:

Long Term Trades:

The Long Term prices have been in an uptrend from the start of this year, with the 200 SMA (in Yellow) getting breached only once during this duration. The $595 level has been a good buy zone and can slowly become the change point for a long term trend. With previous swing lows at $560 as a stop, one can enter into a long term trade at $595. The previous swing high at $778.71 can be a target.

If the market is unable to breach the 100 SMA on the upside at $620, the market can turn bearish. It can crash back all the way to the 200 SMA breaking the support at $560. For this to happen there has to be a strong fundamental factor driving the prices down.

Short Term Trades:

On a daily chart, the Bollinger bands are narrowed out and expanding indicating an impending break out. Given the technical setup, a break out on the bullish side looks more feasible. There is a zone of heavy support around $600, with the middle Bolligner band, 9,13 and 34 SMAs supporting the prices. Good short term trades would be to take positions targeting the 100 SMA.

To get apt entry positions, let’s look into lower time frame:

On shorter time frame (4 Hrs), the setup is trending with parallel Bollinger bands indicating the trend. 34 SMA has been the line of constant support after the test of the support zone. Entering into short term trades at 34 SMA targeting higher Bollinger band can turn out to be profitable. With the setup being bullish, short term trades from the bearish side might be a risky affair.

While taking long term positions, factoring in the news pertaining to US movement for legislation and Fed announcements would be advisable.