This overview was originally written for HitBTC and can be found here: https://hitbtc.com/market-analytics
General Overview
Bitcoin is going through a bit of a tough stretch at the moment. Merchants are starting to see the benefits faster than consumers, who still don’t see a need for instantaneous cheap transactions that will protect their identity if it comes at a cost of them being more responsible. This responsibility involves memorizing passwords, backing up computer files, and learning new technology, which can be a bit more complicated than just browsing the Internet and reading email. This trend would need to reverse for Bitcoin to have a chance at mass adoptions. Unlike other technology in recent times like Facebook and twitter, Bitcoin’s mass adoption is directly proportional to its price since there is a limited number of bitcoins in the world.
At the moment this price is experiencing numerous downward pressures. Companies like Overstock are trying to relieve some of this pressure by paying their employees in bitcoin and perhaps they will also be able to convince their suppliers to accept the new asset class as payment, but for now the majority of these merchants are quickly converting into local fiat on the open market. Talk is also starting to pick up in Bitcoin circles that big players might be considering taking some profits from their early entries and mining profitability is starting to get stressed at these prices. If some miners decide to shut down creating less competition in the space, it would just cause another wave of media coverage of how this ecosystem is too concentrated and can be manipulated by a few actors.
Looking strictly at the price it is starting to resemble a classic bubble aftermath with all the typical signs and if the price can’t reverse soon, the chart indicates the entrance into the “Fear” stage later this year.
It is also following movements of what silver has done over the last 3 years to a tee just at a much faster pace as you can see in the following chart.
At this point however, it is more likely that Bitcoin will becomes the guide to what happens in the Precious Metals space but we are looking at a new frontier. We all know that Gold & Silver will not go to 0 and unlike what most Gold-Bugs still believe, the days of using gold to settle global transactions are long behind us. It’s just two impractical in this fast pace environment of the 21st centaury. Bitcoin however, still has potential to reach both extremes, all confidence can be lost in the blink of an eye or it can become the dominant from of global transaction settlement.
The Month Ahead
The future is looking tough for Bitcoin, not much positives to point to in the charts. A lot of resistance overhead starting at the $500 mark then $530, $560 (base of the descending triangle), $630, $650 and $750. Not much at all holding the price up technically. We have the $440-450 support area and then open air down to $340-380 zone. Look for news to help reverse the downward price trend but as it stands, expect more downside over the next month. Any signs of a swing in momentum to the bull side would start after the price can re-capture $500 and turn it back into a support zone.
The Week Ahead
Looking at an intraday chart we are sitting right underneath a short-term descending triangle that was broken to the downside last night. Today’s action has resolved the over sold condition indicated by the RSI and in textbook fashion the price rebounded back to the breakdown zone of $470-475 and immediately reversed. There is always a possibility that today’s low of $456 is a higher low compared to $442 in August and price is ready to reverse, but we do not yet have any evidence of this.
Conclusion
A reversal in trend cannot be anticipated, there need to be clear signs and at the moment they are few and far between. Everything points to a little more downside on the horizon but if mass adoption is to come it can change everything around very quickly. Until we can confirm a higher high, which has not occurred in months we will remain short and intermediate term bearish. Continue to watch that $440-450 zone for a double bottom and perhaps divergence in the RSI & MACD vs the August Lows. We will wait until the price pushes back above $500 before focusing on potential upside.
Reference Point:Tuesday September 9, 1:00 am ET, Bitstamp Price $468