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Bitcoin Price Analysis: What Position Are You Planning For?

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         Bitcoin Price Analysis: What Position Are You Planning For?

Over the past week, the Bitcoin (BTC) and Bitcoin Unlimited (BTU) discussion has reached fever pitch on social media. Based on the current trajectory, I expect the BTU hard fork to occur within the next four weeks at most and as early as this week, though others may dispute this.

Screenshot 2017-03-26 at 11.58.08 PM.png

Bitcoin Unlimited miners may opt to fork with as little as 51 percent of hash power support, though it would probably be closer to 70 percent. As such, we may be waiting for the fork for a while yet. Follow the BTU and SegWit proposal signaling breakdown per block here.

As a trader, you need to ask yourself, what position do I want to be in before, during or after this event? As a long-term holder, you need to ask yourself, do I want to liquidate my holdings and sit this whole thing out until the situation resolves? I feel most traders will play this short and many holders will liquidate. We are already seeing continued selling pressure since the newly established all-time high.

After the hard fork hits, it will likely take exchanges and on-ramps like Coinbase a week or more to sort through what will likely be an active and fluid situation. This will be more of an ongoing process rather than a singular event. Miners, nodes and users will need to vote with their hash power, blocks and activity to determine the longest or best blockchain. Don’t expect current market capitalization to be supported by both BTC and BTU: it will likely be a zero-sum game with direct inverse correlation. Depending on how on-ramps support BTC or BTU will heavily influence whether a cash infusion can sustain either coin.

A hard fork contingency plan should include simple horizontal resistance and support zones using a large amount of price data.

blx horizontal zones.png

Look for a drop to round even numbers that act as psychological support. Also look to previous resistance levels becoming support. The $750–800 zone seems very likely should the hard fork occur.

Although fundamentals are a bit of a mess at the moment, technicals on the daily time frame are shaping up for a reversal back to previous highs. This chart pattern is known as the Inverted Head and Shoulders, which is a set of three attempts down at an established horizontal resistance known as the neckline (red). The pattern can be predicted before completion but should not be traded until after completion. It should also be noted that the neckline may be diagonal resistance and each shoulder does not necessarily need to extend to the previous shoulder’s horizontal level.

h+S setup.png

We can look no further than January this year for a previous example of how this may play out. This pattern took 25 days to complete and hit the measured move target 23 days after breaking the neckline. Also, not shown, the pattern should include a descending volume profile, which is echoed by both patterns. The predicted move is measured from the neckline to the head and projected from the neckline upward. A break of the neckline, with volume, is what to look for when taking a long position based on this pattern. Should the current pattern complete similarly to the previous, I’d expect resolution around April 12 with a target of ~$1350 around mid-May.  

Additionally, there are two sets of bullish divergences on the daily time frame, which can be found using an oscillator such as the Relative Strength Index (RSI). The first (solid green) divergence qualifies as a bullish divergence because price made a lower low on less momentum, or a higher RSI. The second (dotted green) qualifies as a hidden bullish divergence. A higher low was established despite increased bearish momentum, or lower RSI. Both divergences indicate an exhaustion of selling pressure for the moment. These divergences can easily be canceled should price make a much lower low.

Summary

1. A Bitcoin Unlimited hard fork will likely become a reality, although the timing of it is up for debate. Expect it to get messy and ugly for bitcoin price and the Bitcoin brand. Plan accordingly.

2. The nearest support is around $750–800. I’d expect that zone to be reached rather quickly. I do not expect to test $450, but support is there should price breach $650.

3. Should the hard fork take longer than two months to activate, expect a reversal of bearish momentum to ~$1350.

Trading and investing in digital assets like bitcoin is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTCMedia related sites do not necessarily reflect the opinion of BTCMedia and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.

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