Back on September 2, 2015 when bitcoin was trading at $230, we laid out the simplest and most fundamental reason why, irrelevant of one’s ideological persuasion with “alternative” or digital currency – bitcoin would soar.
it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented “forking” with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.
For now only a small fraction of the eligible potential Chinese bitcoin users have emerged. Even so, bitcoin is now double the price where it was when we wrote the above forecast.
But what if just like every other market, fundamentals only matter to a certain extent, and what is far more important is the algos scanning for patterns and creating self-fulfilling chartist prophecies.
In other words, what if the Bitcoin technicals are far more important? Then we may be about to see a major breakout to the upside. As Dan Eskola writes, “a large move in bitcoin” is imminent.
He explains why:
A “Bullish Pennant” is a buy indicator. It exists here since the price action in October 2015 was bullish. Since then the prices have stabilized somewhat but have not sold off or broke out higher. Bitcoin prices are searching for direction.
The long term chart also shows some common characteristics.
Fundamental analysis is great, technical analysis is easy. The following fundamental bullish factors indicate that the prices for Bitcoin are headed higher.
- A finite number of Bitcoin will be mined.
- Central bankers are convinced inflation targeting is the correct policy action to promote price stability.
- Capital controls in struggling economies are creating new users of Bitcoin.
- Easier to transfer than Gold, the traditional inflation hedge.
- ETF $COIN seeking regulatory approval will expand market awareness and offer another vehicle for investors.
I believe the market participants that price Bitcoin use technical analysis because it is easy and fundamental analysis is difficult. I believe that Bitcoin prices will move higher for the rest of 2016.
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