Wednesday, 10 May 2017

Bitcoin Price Breakout on Japanese Government Recognition

The 1st half of this article is a follow-up of my previous post entitled Next Probably Bitcoin Target - Part 2. This 1st half is entirely dealing with technical analysis. But the 2nd half is looking at the fundamental reason for the latest breakout.


 Technically Speaking 

Bitcoin price chart showing breakout from price channel
BTC price for the year so far


I wrote the article on the day (30 April 2017) when prices broke out of the upper trend line as indicated by the chart above. The large bar (or price range) suggests that this is an important pivot point.

I also said that after a break out, the price may retest the upper trend line, which it did (as indicated by the chart above). I didn't buy it back on the day when the price retested the upper trend line because this retest may turn out to be a continuation of a price decline. I did buy it back in the following day when the price went back up, and confirming that this is a successful retest of a breakout.


 Fundamentally Speaking 

The Bitcoin prices have seen some strong spikes from time to time. These spikes are usually accompanied by events that are positive to the development of Bitcoin.

Bitcoin historical price chart showing spikes and events
Historical BTC price chart from late 2013 to present day (May 2017)

This longer term chart above shows the 2 such important events and their accompanied spikes in BTC prices.

The 1st one, which is really the mother of all BTC spikes, occurred in late 2013 after an U.S. Congressional Hearing on Bitcoin. Its positive tone sent BTC prices soared from just over $130 to a giddy height of $1150 -  a high that didn't reach again until a few years later.

The start of the the 2nd spike occurred only few weeks ago when the Japanese government has recognized Bitcoin as an asset and legal tender.

This news is huge (or as Trump would say, YUGE), and interesting. It's interesting because the disastrous Mt Gox was used to be a Japanese based Bitcoin exchange. Clearly, this incidence didn't stop the Japanese government's confidence in cryptocurrency, which has continued to thrive after Mt. Gox fiasco.

Of course, the spike of this news couldn't possibly be as big as the spike - which went up about 8x in prices - that caused by the US Congressional Hearing. There're at least 2 reasons for this.

1. Japanese economy, while it's big, isn't as big as the U.S. (and both of these BTC communities combined are far smaller than the Chinese, which was really the one that was responsible for the spike).
2. The Bitcoin market cap is now about 10x as large as its market cap before the US Congressional Hearing. Volatility is inversely proportional to market cap. So when market cap gets larger, price spikes would get smaller in magnitude and frequency.

So we can't expect that the prices would go up 8.5x from here. Also, look at what happened after that 1st spike, it was on its decline for more than a year.

I expect the run-up in BTC prices would go on for a little while, and then it would correct. But even after the pullback in prices, the BTC's average prices would remain higher going forward (unless the Japanese Diet reverses their BTC law). I'm reasonably happy if BTC price go up 2x by the end of the year.

While i expect the BTC prices to decline in a the near future, i probably wouldn't bother to trade in and out. In fact, if it declines too much and fast in my view, i would likely to buy more of it. More than anything, i'm here to enjoy the ride and admiring the changing views of a completely new 21st century currency.

As each country declares Bitcoin as money legally, it would give this crypto a boost in price. If PRC gives it an acceptance, it would receive the biggest price boost as China has the biggest BTC community, miners and exchanges by volume. As more and more countries do this, there'll come a critical point when other countries simply jump onto the bandwagon. They don't want to be left behind. I'm hoping this process takes time. Because if this legalization of Bitcoin happens too rapidly, BTC prices will reach a speculative bubble; clearly not a desirable situation. I've a feeling that nothing happens slowly in Bitcoin. After all, it's a digital product, and nothing occurs slowly in the digital world.




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