Is Bitcoin in a Bubble?
Bitcoin was back in the news this week, after another strong rally to a new all time high of $2760 on May 25, 1430 UCT. Bitcoin continues to prove critics wrong and rope in new investors, speculators, news anchors and traditional wall street money. ABC news Australia had a news segment 3 days in a row, showing Bitcoin alongside gold, brent oil, iron ore and major currencies. Fidelity, a $2.2 trillion asset management company, revealed it was mining bitcoin and was gradually getting into digital currencies. All these happened despite a widening rift in the community on how to scale Bitcoin, which has led some to speculate on an impending bubble top.
Like expert trader Paul brandt, who likened the current peak highs to silver in 1980. Or, ex-Goldman Macro investor Raoul Paul, who admitted liquidating his bitcoin holdings over the current scaling deadlock. The altcoin currency frenzy has not softened the cushion
After peaking at $2700 on Bitstamp on Thursday, Bitcoin declined sharply to $2251, followed by a retracement, then another drop to $2231 thereafter. This drop caught traders by surprise, and the ensuing 61.8% retracement was a relief to many. But, these were only the first and second waves of what now, in hindsight, was a correction of the main trend. Wave A drop, Wave B retracement, were quickly followed by a 5 Wave C break down, past the 50 and 100 day EMA waves.
The chart below was an expected drop to form a wave 4 corrective wave.
As per Elliott Wave guidelines, wave 4 retraces to the region of previous lower degree wave 4, and take the form of a-b-c, a-b-c-d-e corrective patterns within triangle, wedges, bull flags and diagonal structures.
The failure of the retracement to break higher formed a wave b top seen on the chart below. The 5 waves that followed confirmed the b top and a lower low quickly followed in 5 impulsive waves. This drop rattled traders some more, who now worried if the final top was in and whether the long overdue correction was in force.
According to elliot wave guidelines,
“After a 5-wave impulse advance, corrections (abc) usually end in the area of prior Wave 4 low”
Price briefly touched the region of lower degree count wave 3, but it is far from convincing. The market seems caught in the middle – whether price has found a final bottom and price is heading back for a wave 5 top to test $3k, or, there is an imminent drop to the region of lower degree wave 4. There is also the low probability that the final top was $2700, and the bear has resumed.
The chart below maps the possibilities of price formation over the next 24 hours. As at writing this price is at $2300
The count in brown is a higher degree A – B – C that encapsulates the first a, b, c complete wave. If indeed the current retracement to $2400 is another B wave, then i expect wave 1 and 2 to set off another 5 wave drop beyond A.
The count in grey, is possibly the first wave 1 and 2, of a 5 wave move to the upside. This would mark the resumption of the larger trend.
The count in grey supports the brown count, as the first a wave of an a, b, c correction – notice how c breaks into 5 waves in red. This is nested within the higher count B correction.
So price is either breaking down some more to below $1850, or $1853 is the bottom and price has found a bottom.
Whatever the case, wave 4 can only take one of several corrective structures, on the chart above. So, the retrace back up may not necessarily break out to new(er) all time highs, but more likely give clue to the most likely pattern. Fibonacci retracement levels, support and resistance lines and trend lines will aide in defining the structure.
Russian Central Bank Mulls Cryptocurrency Regulation
This week on Thursday, the Deputy Central Governor Olga Skorobogatova suggested the Bank might classify cryptocurrencies as digital goods for purposes of taxation. A draft proposal is expected in a month according to Sputnik News. Unlike the past, this time all state departments are on board, agreeing to apply the current legislation on digital goods, with amendments on taxes, control and record keeping.
Russian volumes on peer to peer marketplace localbitcoins are the second highest after China, at $7 million per week in the past month. Olga Skorobogatova said Russia is keen to rein hidden cryptocurrency transactions
“If people are engaged in this, they have to pay money for it. And we must understand how to control these activities.”
$2.2 trillion Asset Management Company is Mining Bitcoin
Fidelity, a 71 year old company with over $2.2 trillion worth of assets under management came out publicly about mining bitcoins using 21 incs computers at Coindesk Consensus 2017 event. According to the FT, Fidelity
“Handles the retirement and savings plans for approximately 26m people and 23,000 companies”
Abigael Johnson, the CEO, said her employees would be paying using Bitcoin at the staff canteen, a sign of the company’s intention to pioneer digital currency. She underscored the importance of traditional finance catching up to the evolution of technology. Fidelity already has stakes in a handful of venture investments in Bitcoin businesses.
Quartz reported Johnson saying
“customers would be able to see cryptocurrency balances on Fidelity’s website, if they hold an account with Coinbase, one of the largest providers of storage and trading services in the cryptocurrency business.”
Bitcoin continues to make strides into mainstream financial circles, and this can only bode well for price in the long term.
Bitcoin governance is in a mess right now
The scaling disagreement between proponents of SegWit – an off chain scaling solution – and Big Blockers has hit a snag. Majority of the network’s miners led by Bitmain, are happy to increase the block capacity on chain, via a hardfork. But Core developers say it is too risky, instead proposing a soft fork. But this proposal has failed to achieve the 90% signalling consensus threshold of amongst mining nodes. Meanwhile Bitcoin blocks are full, transactions are slow, average fees have gone up100%; all severely impacting the Bitcoin payment experience.
Despite a reported agreement at Consensus 2017 on Segwit2Mb – combined soft/hard fork proposal from March, a deal that was supposed to:
1. Activate Segregated Witness at an 80% threshold,
2. Signal at bit 4 Activate a 2 MB hard fork within six months
the two key factions are adamant. A group of miners like Via BTC and BitMain continue to voice their support for a Hard fork, while Core developers back a User Activated Soft Fork proposal (UASF), intended to enable users, not just miners, to signal an upgrade to Segregated Witness on August 1st.
June July will be intense months for Bitcoin, and i expect to see this manifest itself in the price.
Bitcoin Weekly Price Forecast
This week I am bearish bias, and expect another dip lower to $1700s to the previous lower degree wave 4 triangle at $1600. This correction should resume a trend to test $3k, so i am also open to a corrective structure that does not necessarily break below $1850. My least probable expectation is a confirmation of $2700 as the final top. I do not think the crypto bubble is over.
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