In our previous newsletter, Q3 2018 Market Overview, we analyzed the current bear market and our expectations regarding further declines, which arrived as we expected. We also looked specifically at what we termed “Looking for Bitcoin’s bottom:‘Buy The Dip’”. In our review, we gave clues regarding calling the bottom, one of them being a strong capitulation in Bitcoin’s price.
With an additional drop of approximately 50% in Bitcoin’s price since Nov. 2018, could this be the bottom?Let us examine this question more closely by looking at a few possible indicators. Of course, actual trends are subject to all variables affecting the market and no individual indicator can predict actual results.
Bitcoin’s Price Analysis
1) Meme indicator (aka Social Sentiment)
Here is one of the most creative memes from this week:
The last couple of weeks have seen one piece of bad news after another. We have gathered a small collection of the more pain-ful headlines:
- Bitmain closing Israeli development center
- ConsenSys Confirms Layoffs, Projecting 13% of Staff at Start-ups to Be Cut
- Leading Ethereum Classic (ETC) Development Team Shuts Down Operations Due to Funding
- Steemit On the Edge of Closure
All in all, it appears that market sentiment is an all time low. It seems as if people are ready to throw in the towel, which might indicate that the bottom is in.
2) Long Term Trend Analysis
Figures 1 & 2 show the BLX (Bravenewcoin Liquid Index for Bit-coin) on a weekly scale.
As can be seen, in the 2015 bear market, the 200 week moving average (the blue line) acted as a good support level.
The recent drop in Bitcoin’s price brought us within touching distance of the 200 moving average (MA). If the price acts in a similar manner (remember, we are dealing with long time frames), there is a low probability of closing below the 200 week MA.
3) TD Indicator
One of our favorite technical indicators is Tom Demark’s TD sequential indicator.
a) Monthly time frame
In 2015, we bottomed at the 5 month TD count (Figure 3); we are now in TD 5 as well.
b) Weekly time frame, Figure 4
In the weekly time frame (Figure 4), we are already at TD 4; last time, we bottomed at TD 6. However, in 2015, TD 4 was still above the 150 week MA (purple line). Therefore we will have confirmation in the next 2 weeks, but we think it there is a strong likelihood that the bottom is in.
In summary, the TD indicator signals that we are nearing the end of a period of strong downward momentum, with a possible upwards price correction.
4) Bitfinex Shorts Analysis
BTCUSD and especially ETHUSD Shorts on Bitfinex (Figure 5) are at an all-time high.
This is a strong contrarian signal that sellers might be running out of steam. In addition, traders should beware of a short squeeze.
5) Local Bitcoin
Local bitcoins tracks the global peer-to-peer trade volumes of Bit-coin transactions.
Figure 6 shows 12 week MA according to the data posted by Coin.dance reports.
As can be seen, recent bottom took place on 20/10/2018 at ~$50M. Since then, the volume has been steadily rising, with volume now stabilizing on approximately $55M.
6) Price Prediction
And now to the 21 million bitcoin question – price prediction!
Based on all of the above, our price analysis is as follows -With high probability (>95%), we believe that the market is very close to the bottom:
- We would estimate that there is a ~47.5% probability that the bottom is in (although we thought we will reach this point during Q1 of 2019)
- We would estimate that there is a ~47.5% probability that the markets will drop another leg lower, in the next 2 weeks or after a dead cat bounce in Jan/Feb 2019, but we do not expect it be much lower ($2,700 – $2,900 range)
- We would estimate that there is a low probability (<5%) that there will be a total break of the market later on to $1,000 – $1,500 area for a short time, testing previous resistance-turned-support level.
So what’s next?After having called the bottom, it doesn’t necessarily mean we will immediately transition into a bull run. In the next issue, we will address our market outlook for 2019.Any actual investment decision should be based on consultations with your own professional advisors in light of your particular situation. Do your own research.
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