Bitcoin (BTC) has experienced a rapid increase in volatility over the past few days. The current spot price is down 68% from the all time high set in December, and is now below the psychological level of a US$100 billion market cap for the first time since surpassing this key level. The market cap currently stands at US$95.61 billion, with US$1.85 billion traded in the past 24 hours.
Three prevailing influences on the Bitcoin market over the past few weeks include turmoil in legacy markets, Bitcoin Cash, and market confidence in Tether and Bitfinex.
Looking to legacy markets, most of the world market indices have all dropped significantly since the beginning of Q4, including U.S. (DJI, NDX) & Japanese stock markets (NI225), as well as emerging markets (MSCI) and oil (USOIL). This "risk-off" environment suggests that investors are moving funds to safe haven assets. There has always been speculation that BTC could be considered a safe-haven asset, but this does not currently appear to be the case. BTC price reacted more bullishly to the "risk-on" environment of legacy markets throughout 2017.
https://images.ctfassets.net/sdlntm3tthp6/2VtC6A6Y9Wa2u6iKAyAwuu/6670f809e324d94d793359ec93a02bdc/Bitcoin_Price_Analysis_19_NOV_2018__1_.png
Turning to Bitcoin Cash, the fork of Bitcoin was born on August 1st, 2017 after a disagreement within the Bitcoin community regarding block size. Fast forward to a few weeks ago, and differing of ideals within the Bitcoin Cash community have begun to surface.
Roger Ver, of bitcoin.com and Jihan Wu, of Bitmain, are firmly in the Bitcoin Cash ABC faction, which introduces a new scaling solution, Canonical Transaction Ordering (CTOR), as well as a few new opcodes. Craig Wright and Calvin Ayre are in the Bitcoin Cash SV faction, which increases the block size from 32MB to 128MB and also reintroduces several opcodes.
https://images.ctfassets.net/sdlntm3tthp6/PAq1JERL0ag6oaq4M6AWi/a67129393975576e1ff7077496ac2926/Bitcoin_Price_Analysis_19_NOV_2018__2_.png
Market wide fallout has included severe volatility leading up to and after the fork, as well as major exchanges and services requiring blog posts and announcements detailing how they will handle the split. There has also been a hashrate war between ABC and SV, with ABC in the lead. The ABC chain is currently 19 blocks ahead of the SV chain. Some exchanges have created a de facto winner, ABC, by listing only the ABC pair, while others have listed both pairs.
https://images.ctfassets.net/sdlntm3tthp6/5KpwjsXQUo8WES8suWWY40/a6e26b8cfde6ef4b2492e7b046d1a20d/Bitcoin_Price_Analysis_19_NOV_2018__3_.png
Moving onto Tether (USDT) and Bitfinex, questions remain essentially unchanged over the past two weeks, despite some recent events. On October 24th, Tether burned US$500 million USDT from the treasury, removing the excess from circulation (chart below). On November 1st, Tether announced a banking partnership with Deltec Bank & Trust Limited, located in the Bahamas. The notice included a banking statement revealing Tether was in possession of US$1.8 billion.
On November 11th, Bitfinex announced a 3.0% fee on any account requesting two fiat withdrawals in any thirty day period and/or requesting more than US$1 million in fiat withdrawals in any thirty day period. Bitfinex may exempt some customers from this charge, although the details of which customers were not given, nor the conditions which would enable exclusion.
According to Bitfinex, the exchange processed over 700 withdrawals representing more than US$1 billion in October 2018 alone. Overall, this indicates USDT is freely being redeemed for USD and that there are adequate banking reserves.
https://images.ctfassets.net/sdlntm3tthp6/5bhB61vPwWUwOMGMiwyo2Y/8939c17d47e33a74f3d94d38d550f159/Bitcoin_Price_Analysis_19_NOV_2018__4_.png
The market rate for USDT (chart below) has almost reached parity with the Dollar once again, after declining on the news of the new Bitfinex fees. The historic USDT market rate has never been exactly US$1.00. The market rate of USDT has fluctuated during times of excessive volatility, while the 1:1 peg has always been honored by Tether.
The BTC premium between Bitfinex, where USDT is a major currency, and Coinbase nearly reached US$1,000 on October 15th, but has begun to decline. The premium is currently just under US$100 or ~1.82% and is returning to the historic range seen during normal market conditions. As confidence in the exchange and free-flowing USDT return the premium should continue to decline as traders arbitrage the difference.
https://images.ctfassets.net/sdlntm3tthp6/42yMU84QacaGGwOE42MaEk/c678f5b931ec16add366fcef04044db7/Bitcoin_Price_Analysis_19_NOV_2018__5_.png
Turning toward the Bitcoin network, the number of BTC transactions per day (line, chart below) has steadily increased since April, reaching an eight month high over the past week. Transactions per day have declined throughout the year for most cryptocurrencies and assets. BTC is the only coin which has had steadily increasing transactions per day since April.
The average transaction value in USD (fill, chart below) on the other hand has continued to decline since January after reaching US$79,000. A rise in transactions per day with a decline in the average value of those transactions suggests more transactions with smaller amounts are being sent through the network. Average transaction value may increase dramatically as BTC experiences an increase in volatility. Overall, average transaction value remains high historically, matching two previous highs in December 2013 and February 2016.
https://images.ctfassets.net/sdlntm3tthp6/18fGYRewXOU6CUcQMwc422/d72ce7ab58057f1df68ac6ddd191ac13/Bitcoin_Price_Analysis_19_NOV_2018__6_.png
<a href="coinmetrics.com">Source</a>
Bitcoin days destroyed (BDD), which has continued to decline, suggests that long term holders with significant amounts of BTC are keeping funds dormant. This metric can be used to analyze early adopters cashing out or moving coins between wallets. For example, if someone has 10BTC that they received 10 days ago, and then they spend or move the BTC, 100 BTC days have been destroyed. BDD increased slightly in August, which is most likely related to an old wallet associated with Mt. Gox and Silk Road moving 111,000 BTC, some of which ended up on Bitfinex and Binance.
The months with the highest BDD have historically correlated with highs or lows in price. A spike in BDD in July 2017 was likely related to the Bitcoin Cash hard fork. On June 20th, a spike in BDD preceded a drop in Bitcoin price two days later. However, this should not be seen as a 1:1 correlation. A rise in BDD can also represent custodial providers moving coins between wallets, which is typical of major exchanges or OTC brokers.
https://images.ctfassets.net/sdlntm3tthp6/3iWknLDnhYAg4yU6my2SuQ/67021090217df38008bd263cff95ac4b/Bitcoin_Price_Analysis_19_NOV_2018__7_.png
<a href="oxt.me">Source</a>
The 30-day Kalichkin network value to on-chain transactions ratio (NVT) has begun to flatten near record highs for the past month (line, chart below). While inflection points in NVT can correlate with extreme highs or lows in price, a rising NVT should be seen as bearish due to decreasing network utility. Kalichkin's NVT does not account for inflation or the use of off-chain transactions, which would decrease the overall NVT ratio.
Daily active addresses (DAA) have continued to increase since April, but remain significantly lower than the highs in January (fill, chart below). A large uptick in DAA should be seen as a bullish indicator for price as it suggests an increase in demand. Also, there continues to be large grassroots interest in BTC, as suggested by 1,679,490 members and 5,582 meetups worldwide on meetup.com.
https://images.ctfassets.net/sdlntm3tthp6/Dhm8svxqWyGKcWGykAme6/fa9b750fc5f4103aadeec019bbac276b/Bitcoin_Price_Analysis_19_NOV_2018__8_.png
<a href="coinmetrics.com"vy>Source</a>
Network hash rate and difficulty have temporarily plateaued after explosive growth this year. Hash rate may continue to increase by about ~15% without the release of new ASICs, as more and more miners have opted towards using overt ASICboost. Approximately 19% of all blocks mined over the past week were mined with overt version-rolling ASICBoost, a trend that has continued to rise since mid-October when Bitmain released firmware to activate overt ASICboost on the Antminer S9.
Difficulty adjusts upto 25% every 2016 blocks and recently experienced a 7.4% decline, the biggest decrease since January 2013. Difficulty will continue to decline if miners pull hashing power away from Bitcoin and toward other blockchains, including the Bitcoin Cash network.
Difficulty has had 10 decreases of more than 1% since 2016, all but the most recent adjustments preceded an increase in BTC value shortly thereafter. A potential cause for this correlation is an increase or decrease in BTC being mined in between difficulty adjustments. As difficulty lags a large uptick in hashrate, block times are decreased slightly, more BTC is mined in that period, and more BTC is potentially sold by miners. The opposite is true if hash rate falls substantially before the next difficulty adjustment.
https://images.ctfassets.net/sdlntm3tthp6/5xwHDH6INywsWWEEeAKIMi/e5da1bd2ab3d2df54fdb388ea5b120e1/Bitcoin_Price_Analysis_19_NOV_2018__9_.png
<a href="bitinfocharts.com">Source</a>
The average BTC block size has remained far below the block size limit of ~2.2MB since March. Despite an increase in average block size since April, average transactions fees have not increased and currently average US$0.52, which is on par with February 2017 levels.
A low and non volatile transaction fee can be attributed to the general decline in network use as a whole. Additionally, an increase in transaction batching, SegWit use, and off-chain channels like the Lightning Network and Liquid side chains have also contributed to removing network strain and keeping fees low.
https://images.ctfassets.net/sdlntm3tthp6/5LXjmXfH9YoKGWSwaYKMic/f7d26f23e767b8a5e5d4663e83901256/Bitcoin_Price_Analysis_19_NOV_2018__10_.png
<a href="bitinfocharts.com">Source</a>
Pending transactions have seen several spikes above 20,000 over the past few weeks. A spike to almost 40,000 occurred in the setting of the Bitcoin Cash hard fork as some miners and mining pools moved hash rate from BTC to Bitcoin Cash. Any spike in pending transactions has been short lived and cleared almost completely within a few days. Pending transactions have remained far below the period of 200,000-250,000 unconfirmed transactions in December.
https://images.ctfassets.net/sdlntm3tthp6/53vt0wIlFKsuweGAM26iog/ac2e1446a68d8bb5dc25b7765260671d/Bitcoin_Price_Analysis_19_NOV_2018__11_.png
<a href="https://jochen-hoenicke.de/queue">Source</a>
Transaction Batching, or sending one transaction with many outputs instead of sending each transaction individually, has greatly contributed to network efficiency. The ratio of outputs per transactions, or batching ratio, had averaged ~2.7 outputs per transaction over the course of the year, but began to decline steadily in late August. In May, a study found that ~12% of all transactions were batched, accounting for between 30–60% of all on-chain transactional value.
Although the batching ratio has trended downward since February, there have been several days where the ratio has spiked. Overall, this indicates a cognizant industry-wide effort towards increasing transaction efficiency.
A consistent decline in the batching ratio may suggest an influx of new users, and/or more transactions from low use users. Batching is most effective when used by high transaction volume market participants, such as crypto exchanges and miners, which would benefit more from the reduced fees. Unfortunately, a significant drawback of batching is decreased transaction privacy, which is currently at the forefront of Bitcoin research and development.
https://images.ctfassets.net/sdlntm3tthp6/1vZuNrVhygIceWOKyKW4am/4682b934a0210b17f087fd6fbc2d5662/Bitcoin_Price_Analysis_19_NOV_2018__12_.png
<a href="https://outputs.today">Source</a>
Segwit adoption currently accounts for ~40% of all network transactions. SegWit, or BIP141, was activated on August 23rd, 2017 via user activated soft fork and allows individual transactions to occupy less block space than a traditional transaction. Although both non-SegWit and SegWit addresses can be sent over the network, SegWit users pay less in accumulated fees to achieve the same number of transactions. SegWit also allows for an effective blocksize limit above 2MB. SegWit adoption has continued to increase despite an overall decline in transactions per day throughout the year.
https://images.ctfassets.net/sdlntm3tthp6/2hADE5XJHOgGQQgIiq4g8i/f1109e6b2ee97abeab79e0a7a25fc0f9/Bitcoin_Price_Analysis_19_NOV_2018__13_.png
<a href="https://p2sh.info/dashboard/db/segwit-usage
">Source</a>
SegWit also enabled the possibility of further second layer network utilities like the Lightning Network (LN), which facilitates trusted, bidirectional, off-chain, hub and spoke payment channels. The LN also paves the way for the possibility of instant payments, microtransactions, and increased scalability.
Since going live on March 15, 2017, the LN has continued to gain traction. There are now more than 15,000 available channels, with a channel value of 336 BTC, or US$1.86 million at current prices. The channels work much like a tab at a restaurant, which remain open until the client settles the bill. This format allows for numerous transactions to occur without a network fee, until the channel is closed.
https://images.ctfassets.net/sdlntm3tthp6/1YbkiZXrsUaYU8GWwYaSWY/c91132d9ad2e91c78b48006106897502/Bitcoin_Price_Analysis_19_NOV_2018__14_.png
<a href=" https://p2sh.info/dashboard/db/lightning-network">Source</a>
Turning to developer activity, over 170 developers have contributed a cumulative 3,269 commits to the BTC project on GitHub over the past year, mostly on the main repo. Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
https://images.ctfassets.net/sdlntm3tthp6/4QPnjWvXvOi6IKsuEWIsy2/3a9e70ecd4158bd814abbd824a5e6480/Bitcoin_Price_Analysis_19_NOV_2018__15_.png
BTC exchange traded volume over the past 24 hours has been dominated by Tether (USDT), with the United States Dollar (USD) markets representing less than a third of USDT volume. Exchanges with the most volume over the past 24 hours include CoinBene, Binance, Huobi, and Simex.
In Asia, volume on the Japanese Yen (JPY), Korean Won (KRW), Chinese Yen (CNY) pairs have remained subdued throughout the entire year, and currently account for less than 5% of global volume. These Asian fiat pairs may increase substantially as regulatory scrutiny in the region is reduced and clarified.
https://images.ctfassets.net/sdlntm3tthp6/3jH98nsbQ4MWmkaoq6KUAw/df2c0121c9838e25c9225af477921ea3/Bitcoin_Price_Analysis_19_NOV_2018__16_.png?w=600
Global over the counter (OTC) BTC volume, from LocalBitcoins.com, has remained essentially flat over the course of the year, but has been slowly trending upward over the past few months. The biggest increases in BTC and notional value globally have come from South American countries where inflation or hyperinflation has devalued local currencies.
https://images.ctfassets.net/sdlntm3tthp6/2CWaIVHqss86EeImC4C2YK/760e027d2157a59594283369eb266a5c/Bitcoin_Price_Analysis_19_NOV_2018__17_.png
Google Trends for the term "bitcoin" remain down sharply over the course of the year but have begun to increase again. A slow rise in searches for "bitcoin" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and BTC price. A May 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.
https://images.ctfassets.net/sdlntm3tthp6/2FUjeqMRzqg8CE8Goe04gW/47c8062bad4ed9da5dba5665d5568174/Bitcoin_Price_Analysis_19_NOV_2018__18_.png
<h2><strong>Technical Analysis</strong></h2>
A period of high volatility following an extended period of low volatility often indicates a new trend formation. A roadmap for the upcoming trend can be determined using Bollinger Bands, moving averages, Wyckoff Method, chart patterns, Pitchforks, and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.
On the weekly chart, the Bollinger Bands (BBands) have begun to expand as price closes below the lower band. This suggests a bearish bias and further downside potential. BBands measure volatility and attempt to predict the direction of price action as consolidation is occurring. If a break out occurs while price is below the 20SMA (red), the indicator suggests bearish continuation. The BBands expand with volatility, after the move has happened.
https://images.ctfassets.net/sdlntm3tthp6/6fLxtUYT2oy2CmueccQga8/c214e3b34c45c064dc56f2f224d59bb2/Bitcoin_Price_Analysis_19_NOV_2018__19_.png
On the daily chart, the 50/200EMAs have been bearishly crossed since May 15th, with price held below the 50EMA more recently. There are no active bearish RSI divergences on the daily timeframe. However, RSI is currently at the lowest level on the daily chart since August 2015 when price made a low of US$162 on Bitfinex.
Long/short open interest on Bitfinex is currently net long as shorts positions have continued to decrease over the past week. Long positions have been steadily increasing since mid-October. A larger decline in price will be exaggerated by leveraged long positions unwinding. BTC and USD funding rates are both relatively low, suggesting that there are ample coins and Dollars available to borrow for leveraged trading.
https://images.ctfassets.net/sdlntm3tthp6/7L30VPouNUM6aCsSaGkwqQ/8eb95688c2c9bd0e664d0ca68b5c6798/Bitcoin_Price_Analysis_19_NOV_2018__20_.png
Until recently, price structure on the daily chart had correlate highly with a typical Wyckoff Accumulation phase. The Wyckoff Method can be used to help determine where price sits within a cyclical pattern. An accumulation phase occurs before a new markup phase. BTC experienced one of these classic accumulation periods throughout 2015. A successful accumulation period would be highly indicative of a prolonged bull trend with another accumulation period around the yearly pivot at US$11,000.
Price also sits within a multi-month Falling Wedge, making successive lower highs and lower lows. This pattern can precede bullish reversal, and typically resolves when 75% full, experiencing a more explosive move when 80% complete. Using Bulkowski's measure rule, a bullish target of US$11,000 and a bearish target of US$3,980 are projected. This zone also represents a previous range with high volume.
https://images.ctfassets.net/sdlntm3tthp6/4mdbOpcpoQEcwIowGEa6qs/0b7fdd36a6f965a119b1988726cf5923/Bitcoin_Price_Analysis_19_NOV_2018__21_.png
Alternatively, price has broken below the multi-month Descending Triangle on the daily chart, which holds a bearish continuation bias. Using Bulkowski's measure rule, a bearish target of ~US$2,000 is projected. The 1.618 fib extension from the triangle width paints a bearish target of US$1,295. The yearly pivot at US$3,000 should also be considered as strong support. Overall, this paints the ~US$1,700 zone as the price for any potential bounce.
https://images.ctfassets.net/sdlntm3tthp6/5U35Zf3WSI2kmI2GQSAcCS/c3ff4a3ba0c2dc0d46d92689d3b5ee9c/Bitcoin_Price_Analysis_19_NOV_2018__22_.png
Price also remains in the bottom third of the upward trending pitchfork, which started in 2015 and has candle wick anchor points in January, May, and August of that year. Price will need to maintain a range of US$5,000-US$5,500 in order for the bullish pitchfork to remain valid. Price will continually attempt to return to the median line (yellow) throughout any given trend, currently at US$9,500. A price rise above the median line would likely have a maximum upside target of ~US$16,000 by the end of year.
https://images.ctfassets.net/sdlntm3tthp6/3VdtRNqVSUoiGoMeUaIqCw/52c869f263adcac886cb3ce2b99a5a18/Bitcoin_Price_Analysis_19_NOV_2018__23_.png
Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
On the daily chart, the Cloud metrics are bearish; price is below the Cloud, Cloud is bearish, the TK cross is bearish, and Lagging Span is below price and below Cloud. A long entry based on traditional Cloud strategy would not be warranted until price breaches the Cloud. This is known as a Kumo breakout, which has not occurred this entire year. The long flat Kijun at US$7,138 represents a magnet for price. If price does not continue to decline, the Cloud will begin to thin, creating an opportunity for a bullish Kumo twist and bullish Kumo breakout within the next few weeks.
https://images.ctfassets.net/sdlntm3tthp6/5gb3EahKvScuoUMeQoQ8yY/e2a3b3ded9a8a68ac0e7d3960caaa2e0/Bitcoin_Price_Analysis_19_NOV_2018__24_.png
Lastly, the opening and expiration dates of the Chicago Mercantile Exchange (CME) BTC futures contracts can have a significant impact on price. The next three-month futures contract is set to expire on November 30th. The CME facilitates trading in the largest portion of derivatives contracts in the world. The September 4th contract opened at almost exactly the top of the current price range. A three month contract closed on October 26th, with a new contract opening on October 29th. Price saw essentially no increased volatility in this time period.
https://images.ctfassets.net/sdlntm3tthp6/12v8jHJOsCYUSgiCqaAMeU/f5ba46e73ff0d2d9b07cc3a113dcbd12/Bitcoin_Price_Analysis_19_NOV_2018__25_.png
<strong><h2>Conclusion</h2></strong>
As legacy markets tumble, BTC has followed suit. Despite the Tether and Bitfinex situation improving, new Bitcoin Cash shenanigans have emerged to shake up the BTC hash rate. This has had a ripple effect on other key network parameters including difficulty and block time, which will also affect pending transactions and mining profitability. After the Bitcoin Cash civil war ends, BTC hashrate should stabilize. On the bright side, the network continues to scale and shows no signs of pressure from increasing transaction volume and block size.
Technicals are now definitively bearish after having had a bearish bias for many weeks. These include; a bearish break and expansion below the lower weekly Bollinger band, a rejection of the daily 50EMA, a break below the Descending Triangle support, a near break to the downside of the three-year uptrending pitchfork, and continued price action below the daily Cloud. Trend targets for this move are likely near the US$4,000 level with the potential for high volume candle wicks below the US$2,000 level. Price structure, such as repeated formation of bearish continuation patterns, and momentum oscillators will help discern the strength of the bear trend.