Thursday, 3 November 2016

Will Bitcoin (BTC) Price Break Out of June's Peak ?

 Chinese Bitcoin Factor 

BTC price is within a striking distance (some 2% during this writing) of June's height of $768.

There're several reasons for these, which i won't go into in depth. Since China is the biggest BTC community, they exert the greatest influence in BTC price. While the following chart is several months old that i used a few months ago in another article (i'm too lazy to get a latest old), the big picture is that Chinese BTC community still the largest by miles.

Since the Chinese occupies the largest slice of the pie - almost the whole pie / market - therefore they have the largest impact on BTC prices. Proportionally, their impact should be about 90+%. This is hardly surprisingly, the Chinese also has the largest impact on commodities from iron ore, coal, copper, you name it. So why should BTC price be an exception? (Paradoxically, not so much gold. US Comex has the greatest impact on the price of gold).

BTC exchange volume distribution

Just want to mention briefly that the drive in BTC price in China including the drop in Yuan, capital outflow, rise in gold price, and simply political uncertainty. Both Yuan and gold have some - not large - correlation with BTC price. After all, Bitcoin is sometimes being called the digital gold. So the environment that's good for gold would be good for Bitcoin.

Lately, CCP (Chinese Communist Party) asked Baidu - the Chinese Google - not to advertise Bitcoin. The fear of capital outflow causes the Chinese authority to put in measure that prevent citizens taking money out of the country. Bitcoin is one great way to do that. In fact, this is the very political ideology that Bitcoin was born under: to prevent government's control over your money. Bitcoin provides a perfect vehicle for this.

This could be a double-edged sword. If Chinese government is feeling that they're losing control over Bitcoin, they will shut down the BTC exchanges. This will be a disaster for BTC price because Chinese BTC community makes up some 90+% of market share. Based on simple supply and demand price model, a sudden removal of Chinese BTC market would lead to 90+% drop in BTC prices.

Among many system risks, BTC price is hinged very much on Chinese government, who can't kill Bitcoin, but certainly can kill BTC price, if they choose to pull the plug on Chinese BTC exchanges. Not that i think this is going to happen. I'm just saying, this is another risk to think about, even if it isn't huge. I don't think the Chinese government would flip the kill switch on Bitcoin likely. After all, OKCoin has been operating in China soon after the dawn of Bitcoin (5+ years).

Star Xu, founder and CEO of OKCoin
Star Xu, founder and CEO of OKCoin

For taking on so much risks, the Bitcoin holders are rewarded with high price appreciation. The only thing comes close is gold. But gold carries far lower risks. While Bitcoin has been around for about 6 years, gold has been around for 6,000 years. It's far more time-tested. It's true that Bitcoin has technology on its side, but gold is far from being a barbarous relic. Not by a long shot.

It's silly to compare gold and Bitcoin and say which is superior investment or currency or store of value. I've seen some Bitcoin holders swear that Bitcoin is better than gold. It's like asking which types of cars are better. It depends on your needs. If you're young and single, you want sport car (and drive dangerously because you want to, or because that's the only way you know how to). If you have a family, wagon is more preferable. If you're a nature lover, 4-wheel drive or mobile home would be your choice. And it doesn't have to be one or the other. You can have both with different position size, depending on your belief or risk profile or tolerance.

Bitcoin keyring

Bitcoin carries higher risk, but its return is also far higher. When it matures, it carries less risks, so will its returns. If you put your money in Bitcoin in 2009, the risks of its demise is extremely high because its very future existence or acceptance was being questioned, and with ridicule thrown in for good measure, but then its price can jump 10,000% in just a couple of years. Today, Bitcoin market is more mature and far larger, such price spike is unlikely. In 2009, Bitcoin market was a baby size, and you can throw it up into the air with little effort. Bitcoin market is more like an adolescence. Try to throw him/her into the air. Such is the nature of risks and rewards. Return of Bitcoin is still quite impressive. I bought a Bitcoin on August at $586, and today, less than 3 months later, it's $740.

Among many other reasons, it isn't hard to understand why Chinese, not American, is the largest holders of Bitcoins. Bitcoin was invented for people who don't trust their government, and Chinese citizen is no doubt the biggest doubter of their government. Another reason is that there're far fewer investment opportunities in China than USA. The Chinese stock market isn't the best performing investment vehicle in the last few years. Some had been burnt badly during the severe Chinese stock market crash of 2015.

Since Bitcoin is still very much unknown in China - i doubt that more than a few percentage of the population have known about it - not much of this money outflow via Bitcoin is occurring. Banning the ads about Bitcoin would limit this knowledge to spread further. Even in the West, it isn't like everyone is heard of Bitcoin. But as i mentioned before about the double-edged sword, a lack of awareness of Bitcoin in China isn't a bad thing. Turtle would win the race.

 A Very Brief Technical Analysis 

Since it's within a spitting distance of June's top, the question in my, and everyone's mind is, "will the price rise above the June's top?" Nobody can answer this 6 million dollar question. Anyone say they can is a liar. But it doesn't mean we can't make some educated guess, and gauge its probability. Chart analysis is the usual tool for me.

Fortunately, regardless of who and what country or nationality is the major BTC community, or what factors in China that could affect BTC price, at the end of the day, the only universal tool that can ignore all of these different geographical, political and whatever factors is chart analysis. The Chinese is looking at the same chart and interpret the same way. There's no need to understand their minds or circumstances. All that are factored into the chart.

BTC's 6 months price chart as of 3 Nov 2016
BTC's 6 months price chart as of 3 Nov 2016

Looking at the increasing volume - shown by the uptrend arrow in the chart - indicates this run-up is sustainable. Unlike the run-up in June's peak where the volume seems more like a blow-off top volume. The moving averages in this up move is also more sustainable than the June's run-up. Based on only these technical indicators suggest that this rise is probably breaking out of the June's top. Because of it's a resistance, it may take more than one attempt to break out of it.

Up, up and away! (I shouldn't shout like this)

P.S. Read this article for the Sudden Drop in BTC price in the following day after i published this article.

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