Bitcoin finding a base

After a remarkable performance in 2017, in which Bitcoin rallied from below 1000 to a high of 19666, it’s been a very different story in 2018. The rapid increase in the value of Bitcoin and other cryptocurrencies during 2017 may have, in some ways have played a role in the decline in prices during 2018.

With the fanfare of 2017, came increased scrutiny from regulators across the world whose concerns included illegal activities such as money laundering, tax evasion, scams, and theft. Social media giant Facebook, banned cryptocurrency ads in January, before Google said it would also ban ads starting in June as part of a broader crackdown to limit deceptive and misleading advertising.

Also conspiring to make June a tough month for cryptocurrencies were two key events.

A cyber-attack on South Korean exchange Coinrail resulted in the price of bitcoin tumbling from near 7500 down towards 6000 after an estimated 40bn won (£27.8m) worth of virtual coins was stolen. Hacks and thefts on cryptocurrency exchanges are not a recent phenomenon. In 2014, the Tokyo based Mt. Gox exchange which at the time handled more than 70% of the worlds Bitcoin transactions, “lost” 740,000 bitcoins belonging to its customers. The aftermath of this continued to be felt in 2018 as the Mt. Gox bankruptcy trustee was reported to have liquidated some of its bitcoin holdings to repay former customers.

Adding further pressure to the price of cryptocurrencies in June, the Bank of International Settlements (BIS), an organisation that serves as a central bank for other central banks, dedicated two chapters of its annual report to cryptocurrencies. In doing so, providing a Central Bankers view of cryptocurrencies and why they thought cryptocurrencies could never become a mainstream medium of exchange.

The BIS’s concerns over cryptocurrencies included instability, subject to manipulation and fraud, as well as being capable of overwhelming the internet as its decentralised ledgers bloated in size. Cryptocurrencies were also labelled an “environmental disaster” and it was noted, “at the time of writing, the total electricity use of Bitcoin mining equalled that of mid-sized economies such as Switzerland”.

The fallout from the BIS report ensured Bitcoin traded through the February 2018 low to 5774, a decline of 70% from the highs just 7 months earlier. A move that has silenced even some of the most positive of cryptocurrency supporters - perhaps providing a clue to traders.

Bitcoin Daily Chart

In recent weeks, Bitcoin has bounced back towards 6600, recovering almost all of its losses post the release of the BIS report. Buyers have emerged and from a technical perspective, a bullish diverging momentum set up is in place. There is also a possible Wave V low in Elliott wave terms, and finally there appears to be a potential inverted “head and shoulders” bottom currently developing.

Should Bitcoin dip and then bounce from the 6100 region (to complete a right shoulder of the head and shoulders) and then close above the neckline 6900 area, it would project a move towards 7500 and possibly as high as 8900. Something to watch for in coming weeks.

Source Tradingview. The figures stated are as of the 6th of July 2018.  Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation


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