by Jamie Holmes
BTC-USD dipped below $1000 to a five-week low, temporarily trading below $975, the low in the market following the COIN ETF’s disapproval. Two factors which precipitated the panic in markets are the possibility of a split in the network due to the standoff between Bitcoin Core and a substantial proportion of miners and the proposed verification of bitcoin users’ identities in China.
Hard Fork, Regulatory Concerns Dampen Spirits
China’s central bank is working on a draft legislation that would aim to identify each and every bitcoin user conducting trades on exchanges. The PBoC draft under discussion with exchanges propose to verify traders in person before a first-time deposit or withdrawal. For trades larger than 50,000 Yuan, individuals will be verified by video. While the legislation is just a draft, bitcoin exchanges would have to open physical stores if approved and would likely see the lock on withdrawals reversed.
The upcoming week will see further announcements from China, as the central bank meets with heads of exchanges, which could provoke further upset in markets.
A new round of PBoC meetings are expected to be held next week, for discussion of regulation draft details w/ heads of Chinese BTC exchanges
— cnLedger (@cnLedger) March 18, 2017
Also dampening the market sentiment is the uncertainty over whether bitcoin will fork and end up with the original bitcoin and a token for Bitcoin Unlimited. Exchanges issued a plan of action in event of a split of the network.
Bitcoin commentator and well-respected figure in the community, Vinny Lingham, published a post March 18 stating he has liquidated 90 percent of his bitcoin holdings near the all-time high, and will refrain from buying into the cryptocurrency until there is more clarity on the path going forward.
Lingham goes on to argue that the rise in the bitcoin’s price means higher fees and greater aversion to scaling solutions like SegWit from miners. One possible outcome is that Bitcoin will fall to $375, an estimated breakeven point that will force miners to reconsider and adopt SegWit.
At this point, the only way for bitcoin to redeem to previous levels is for the scaling debate to be resolved, where Bitcoin Core could reduce the threshold for SegWit signaling to 80 percent and if pushed forward, Lingham believes $1500 will reemerge as a viable target. Alternatively, the price may remain strong near $875 if it is interpreted by the market that there is no risk of a hard fork.
The Outlook for BTC-USD
The daily price action for BTC-USD on Bitstamp is displayed below. The green Ichimoku cloud has held as support, with the market bouncing up after testing the lower span around $945; buyers are still in control.
Buyers in the market remain in control as the price action has not yet pushed below the Ichimoku cloud. On March 18, the price hit a low of $944.36, which could form a fractal buy level if the market remains above this level until March 21. If confirmed, this would provide further impetus for an upward move.
However, there are two bearish signals given in recent days. Firstly, the cloud has turned red in color, suggesting a downtrend may be forming. Therefore, we look for a daily close below the Ichimoku cloud, that is below $945.61, to confirm a fresh downtrend and look to place limit sell orders around $945.51. This sell position should target $751.34, the most recent fractal support on the weekly time frame.
Secondly, notice that bearish momentum is starting to take hold. The conversion line has moved below the base line, indicating a higher likelihood of further downside. However, this signal is given as the price was within the Ichimoku cloud, so is classed as a moderate bearish sign, rather than a strong one.
The conversion line now acts as resistance, at $1102.18 for March 19. A daily close above the conversion line is needed to validate a bullish outlook. Therefore, we set limit buy orders at $1102.28.
The shorter term outlook is displayed by the 4-hour Renko chart below. The market may be forming a bottom, and shows that the current trend is down.
However, BTC-USD has retested from the low of the most recent Renko candle, moving away from $984.50 and securing gains above $1000. A sustained move above $1063.26 will confirm a reversal and we look to buy just above $1063.26, with an initial target at the fractal resistance at $1260.16.
Alternatively, we use the low of the Renko candle to enter short positions. A break below $984.50 should see the downward movement continue, with a possible target at the fractal support at $787.60.
At the time of writing, one bitcoin stands at $1022.00 on the Bitstamp exchange, with a break of the $1000 psychological barrier providing a further indication that buyers remain in control, for now. However, we wait for signals outlined above to enter buy positions.