Bitcoin Price Analysis: Bitcoin Consolidation Forecasts $3,500 Move

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A strong round of buys hit the market this weekend as unsubstantiated rumors began to circle surrounding Tether and Bitfinex’s potential insolvency. I won’t be going into the details surrounding the allegations because, like I said, they are nothing more than unsubstantiated rumors. However, the effects of the rumors did not go unnoticed.

Tether, a stablecoin and dollar-backed token, began to stack up a sizable premium from its normal 1:1, dollar-to-tether market rate. This deviation in price began to run massive premiums between Bitfinex and other large crypto exchanges. At one point, the price of bitcoin on Bitfinex hit a high of $7,800 while barely breaking $6,700 on most other exchanges. At the time of this article, the premium, although still modest, has closed significantly. The trend difference between Bitfinex and other exchanges tells a very different story than those of Coinbase, Gemini and Bitstamp:

fig1Figure 1: BTC-USD, 12-Hour Candles, Bitfinex Premium and Break of Downtrend

One huge difference between Bitfinex and other exchanges is this clear and decisive break of the multi-month downtrend that has governed the market dynamic for the last 10 months. Currently, Bitfinex is consolidating outside this downtrend and saw the largest daily volume that its BTC-USD market has traded in over 6 months. However, if we take a look at Bitstamp, for example, we see a very different story:

fig2Figure 2: BTC-USD, Daily Candles, Bitstamp Price Trend

Although Bitstamp also saw a sizeable round of buying pressure, it wasn’t enough to crack the downtrend (shown in black). I’m not going to attempt to speculate on the potential outcome of this whole Tether/Bitfinex debacle, but judging strictly from price action, bitcoin is looking very consolidated and ready for a very large move.

The current consolidation pattern is called a descending triangle and has a measured move of approximately $3,500. Whether that $3,500 move is upward or downward remains to be seen, but one thing is certain: The market is very tightly wound and ready for a move:
fig3Figure 3: BTC-USD, Weekly Candles, Bollinger Bands

The weekly Bollinger Bands (bbands) have been consolidating since bitcoin topped at $20,000. If you are unfamiliar with bbands, you can think of them as an envelope of volatility: If the bands are expanding, they forecast a continuation of volatility, if they are contracting they forecast reduced volatility, and if they are squeezing (which is what we see right now) they forecast upcoming volatility.

Since the bear market began, bitcoin has been unable to break the midline of weekly bbands and volume has contracted. Currently, we are making a pivot for a fourth higher low as the volume and price volatility has continued its trend of consolidation. The first milestone, on a macro perspective, would be a break and close above the weekly bbands midline — which just so happens to also line up with the macro downtrend shown in Figure 2.

We have already wicked above the weekly midline, but the price is currently sitting just below the midline values. If we can manage to close the current candle above the midline, that would be a very bullish signal and will likely see the projected move of the descending triangle (shown in Figure 2) push the price to the low $10,000 range.

However, if we fail to break out upward we have an immediate support test in store in the low $6,000 range. This would mark our sixth test of this support — typically not a good sign as support tests tend to weaken with each test. If we break below support, I would fully expect to see, at minimum, a test of the macro 78% retracement shown in Figure 3 — the low $4,000 range. There is very strong support on these values which will likely stifle any significant round of selling. For now, we are basically in wait-and-see-mode until the bitcoin consolidation is broken.

Summary:

  1. Tether/Bitfinex insolvency rumors caused a massive tether premium to occur and, ultimately, resulted in a large price discrepancy across multiple exchanges.
  2. Currently, Bitfinex is sitting outside its macro downtrend while virtually every other exchange is sitting inside its downtrend.
  3. We are in the process of testing the weekly bbands midline and are currently rejecting the midline values. If we can manage to close the weekly candle above the midline, that would be a very bullish signal.
  4. Our currently consolidation pattern has a measured move of $3,500 and can break out in either the upward or downward direction. For now we are consolidating, so it’s very difficult to tell in which direction it will actually break out.

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