The Scaling Debate Weighs on the price of Bitcoin
Over the past 3 weeks, the price of Bitcoin has been reflective of the tension in the community surrounding a protocol scaling deadlock. Traders are clutching at straws, hoping for a return to the exciting bull trend since 2015. But the failure to break the $3,000 level, and a scaling debate that continues to drag on, have left room for bearish sentiment to creep in. A 3 wave drop to a low $2120, forecasted by Goldman Sachs Chief Technician in the last analysis, surprised traders, who rationalized it as a manifestation of the warring factions – Segwit, UASF BIP 148, SegWit2X and Bitcoin Unlimited. Since then, a second attempt by price to get back to highs was met by resistance at $2800, and followed by a decline to a shallow $2300. Here a third attempt to a high failed to break $2600, resulting in a third higher low at $2388. As at writing this, bitcoin is trading at $2595 on Bitstamp, Will it stay up this time?
At the time of the last analysis, Bitcoin was in reversal from a low $1800, moving up in 5 sub waves. While 5th waves are usually the strongest and longest in commodity markets, there are instances when a 5th fails to make a longer wave than the previous motive wave 3. These 5th waves are either truncated, falling short of the wave 4 top, or break past wave 4 only marginally.
After counting 5 waves up, expecting more upside from wave 5, Bitmain released a block post outlining their contingency plan to protect against replay attacks in the event of two chains. This release coincided with a high probability bullish leg up past $3,000. But the bearish sentiment of the release precipitated 2 sharp declines. The first to $2480, followed by a bounce back up to $2800, and a final drop to $2120.
Bitcoin markets are still immature, which makes them susceptible to price sways by insiders and whales in either direction. The blog by Bitmain, one of the largest mining pools and mining hardware manufacturers, was aligned with market technicals that all pointed to further upside. Miners, hardware manufacturers, whales and insiders all have access to market charts like traders. Bitmain’s blog release was likely not coincidental.
The 1 day Bitcoin chart shows a massive correction underway. Differing opinions on market direction amongst traders is really about the shape of this correction before more upside. I find that because different traders use different technical analysis tenets, they are prone to focus on rules and guidelines specific to their chosen method.
For example, this trader suggests the current structure is a large triangle, that just broke out on Bitstamp. Wedge triangles typically break out, retrace to retest the upper sloping edge for a throwback, before resuming the the trend. Resistance levels going up are all the prior tops where price failed to break.
The alternative is a break below $2200 support zone leaving room for a retest of $1800, and worst case $1600 because Bitcoin tends to overshoot.
Carpenoctom on twitter compares the current price formation to the $756 to $450 double sharp declines over May – August of 2016. Price has tested the 50 day exponential moving average 3 times already since June 2017. If it fails to convincingly break up, then a 4th attempt at support will likely fail and return to retest the 200 EMA. The 200 has not been tested since April, and coincides with $1600 – $1800 price level.
Goldman Sachs came out again this week with an updated chart of their elliott wave count analysis. Building up on last time, the top at $2980 is a wave 3 of a larger cycle, and the correction since the last analysis is an ongoing wave 4. While the shape and pattern of wave 4 is still unfolding, Goldman’s Chief Technician Sheba Jafari thinks
“Bitcoin could consolidate sideways for a while longer. Shouldn’t go much further than 1,857. Eventually targeting at least 3,212.”
According to the analysis published on zerohedge, Sheba goes on to say
“It’s worth keeping in mind that fourth waves tend to be messy/complex. This means that it could remain sideways/overlapping for a little while longer. At this point, it’s important to look for either an ABC pattern or a more triangular ABCDE. The former would target somewhere close to 1,856; providing a much cleaner setup from which to consider getting back into the uptrend.”
Indeed, it is hard to say exactly which form shape wave 4 will take. It is possible the current rise is the break out, but my bias is on more downside.
From Elliott Wave fibonacci relationships, Wave 4s very often retrace to about the end of the previous wave 4 of a lower degree, for instance wave iv of a larger wave 3. This is not a necessary condition, but looking at the fundamentals, i cannot help but see more downside as a resolution on August 1 draws near. $1925 marked in purple is the 50% fibonacci retracement of peak low $891 and the $2980 top.
The Future of Bitcoin Conference feature on Chain Scaling Alternatives
The future of Bitcoin conference brought together brilliant minds at Arnhem Netherlands to discuss how to scale Bitcoin. Jihan Wu of Bitmain, Jameson Lopp of BitGo, Ryan Charles of Yours made presentations in favour of different Bitcoin implementations. In a strange twist of events, Jon Matonis, Vice President of Corporate Strategy at nChain invited Craig ‘Satoshi’ Wright to speak during his allocated time slot.
Craig, who has come out strongly against Segregated Witness, the centralization of Bitcoin development and the bitcoin block size cap limit, gave compelling arguments for scaling Bitcoin on chain and lashed out against altcoins for making headway at the expense of Bitcoin.
“Bitcoin is turing complete and can scale up to 5 billion people on chain. We need to raise the block size”
As chief scientist at nChain, he revealed they will be launching a mining pool with 20% hashing power to put a stop to Segregated Witness which requires 80% consensus and will vehemently block all Segregated witness transactions.
Over the past 2 months, Craig, who some in the community dismiss as a fraud for claiming to be part of the Satoshi Nakamoto, has been vocal against Bitcoin Core for stalling the development of Bitcoin and its potential. He has promised to release scientific papers and code through nChain, proving Bitcoin can indeed scale with a block size greater than 8MB.
Craig’s talk contains numerous gems, even in the face of criticism from some sections of the Bitcoin community. If you can look past the man himself, this transcript and audio recording of his talk are worth a listen for a glimpse of what to expect over the coming months.
Bitcoin Weekly Price Forecast
This week, i am mildly bullish, and expect the current rise to run out of steam and fall back to $2000. I am open to the current price rise as the wave 5 break out the market is anticipating to resume the previous bullish trend, but, the ongoing scaling deadlock tips it for me. I am bearish bias.
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