Is a “Perfect Storm” Brewing for BTC-USD?
The phenomenal recent performance of Bitcoin, which has briefly broken above the $700 handle today, could continue with a ‘perfect storm’ of events in the next six weeks. The key resistance going forward lies at $710: a break of this level could see the $1000 level achieved in a couple of months. On a technical note, we are currently seeing similar characteristics in the market as we saw in the run-up to the all-time high at $1163 back in winter 2013. From a fundamental perspective, three events hold substantial risk in the markets and could propel BTC-USD toward its all-time highs: the U.K.’s referendum on European Union (EU) membership; the Federal Reserve’s June meeting; and the halving of the block reward for Bitcoin, expected in July. Taken together they could precipitate a ‘perfect storm’ for BTC-USD and spark another bull rally.
Firstly, the UK will decide on its EU membership on June 23rd with a referendum. The opinion polls have been influencing the British Pound in currency markets recently and recent research shows that European stocks could slump as much as 25% in the event of a vote to leave. If this “Brexit” vote triumphs, then it could shock financial markets across the world and see fiat currencies, especially the British Pound, slump against virtual currencies such as Bitcoin.
Also, higher volatility in currency and stock markets could spill-over into virtual currency markets. On the other hand, a vote to stay is not anticipated to have much of an effect on Bitcoin’s price. No one can draw from experience what will happen if Britain leaves, but it will shake the foundations of economic stability and integration in Europe; therefore, a ‘Brexit’ will no doubt benefit safe-haven assets such as the Swiss Franc, Japanese Yen and Bitcoin.
Federal Reserve’s June meeting
Secondly, the U.S. Federal Reserve meeting on June 14th–15th could provoke weakness in the U.S. Dollar. A weak jobs report from the US for May saw only 38,000 new positions added, roughly one third of what was expected. Fed Chair Janet Yellen called this ‘concerning’ only after previously making a statement that an interest rate hike would be appropriate in the June or July meeting. Given the recent, disappointing employment picture in the U.S., the Fed may opt to push their planned rate hike out to September.
The Fed, however, will announce its interest rate decision for this month on Wednesday (18:00 GMT) followed by a monetary policy statement and economic projections (18:30 GMT). If the central bank holds off from raising rates and holds a pessimistic outlook for the US economy, then this should see U.S. Dollar weakness; market participants will favour selling the Dollar and consequently, this should see BTC-USD appreciate.
Miner reward halving
The last time the miner reward halved for Bitcoin, the effect on the price was pretty muted for a while, staying around $12, until a few months later when it peaked near $30. However, this time with more awareness and greater market activity, the block reward halving could have a substantial effect on Bitcoin’s price. In July sometime, the reward given to miners for ‘mining’ a new block of Bitcoin’s Blockchain will halve from 25 to 12.5 BTC. But given that these halvings are pre-programmed into the code of Bitcoin, they should be anticipated by miners and, therefore, some argue that it should not have any effect on the price.
However, since demand should stay roughly constant and the rate of supply of new Bitcoin is reduced then this should see an increase in the price. Furthermore, the psychological aspect behind the halving is powerful as it reminds us of the scarcity of the virtual currency; therefore, it could be argued that the current bull rally, boosting BTC-USD up from $500 to current levels of $700, could have been sparked in anticipation of the halving of the miner reward in July. This event could continue to attract more investors as the halving will display the legitimacy and credibility of a mathematically based system of money.
The chart below shows the monthly price action of BTC-USD on the BitStamp exchange. For the first time since the rally to $1163, the conversion (blue) line is crossing above the base (dark-red) line signalling a switch to bullish momentum at this timeframe. The conversion line is also trending upward, suggesting the market will continue in this direction over the next month or so. Also, notice that the market is above fractal resistance at $683.26 and we need a close higher than this level at the end of June to confirm a break of this fractal. The only remaining fractal resistances after this at the weekly timeframe are at $710, $995 and the all-time high at $1163. If the market closes higher than $710 at the end of the week on Sunday, we should anticipate the bullish wave to keep riding higher.