The bubble in cryptocurrency threatens the broader financial system, given new buyers’ different motivations from early adopters and use of leverage.
Archives for November 2017
Along with Bitcoin, Ethereum had a crazy day this week. Although Ethereum had a more predictable correction right to the previous resistance level of 395. We were expecting the pullback because Ethereum tends to have a pullback every time it reaches new highs.
ETH/USD Technical Analysis
ETH/USD reached a new high of $480 last week. After consolidating in that area for four days, it rode on the Bitcoin mania and reached a predictable level on Wednesday.
We could see further drops for ETH in the coming days, towards the next support level at 339. However, so far, market participants appear to be indecisive on which direction to take Ethereum next.
Ethereum Founder Unveils Plans for “Ethereum 2.0”
Meanwhile, Ethereum’s founder, Vitalik Buterin, unveiled his plans for “Ethereum 2.0” this week, which would be the next-generation version of Ethereum.
The Ethereum network was originally born as an idea for next-generation cryptocurrency network to begin with. It could do a lot more interesting things than just financial transactions. But, in the past years, it has also revealed a few major issues within the network.
According to Buterin, there are currently three major problems that need to be solved to push the Ethereum network to the next level: privacy, Consensus and smart contract safety, and probably the biggest of them all: scalability.
To overcome these, Buterin explained that the next generation of Ethereum will use a new architecture called “sharding,” which will enable the network to process thousands of transactions per second — all on the same chain, which means safety will not be sacrificed.
Buterin also noted that sharding will create new types of addresses on the network, which will give Ethereum the opportunity to evolve by adopting new backward incompatible protocols without disrupting the main blockchain. Once Ethereum 2.0 is launched, it could potentially create yet another bullish market for it to bring it to new highs, but of course, this could take some time.
Bitcoin’s biggest competitor isn’t Ethereum
While we’re at it, let’s through this idea around.
The biggest competitor to bitcoin and its crypto-empire might appear to be Ethereum. Ethereum has the second-largest market cap of any digital currency, and it’s had an even better year-to-date performance than bitcoin. Further, its blockchain is being tested in small-scale and pilot projects by 200 different organizations in the Enterprise Ethereum Alliance.
But the two cryptocurrency giants seemingly have different missions at the moment. Ethereum appears intent on pushing its blockchain to enterprises, while somewhat ignoring its Ether token as a means of payment. Meanwhile, bitcoin has focused extensively on building up its reputation as a payment facilitator, and only recently turned its attention to attracting businesses to its blockchain. While competitive to a degree, bitcoin and Ethereum aren’t direct threats to one another.
Instead, bitcoin’s biggest competitor just might be Litecoin. As of Nov. 27, Litecoin had the sixth-largest market cap of all cryptocurrencies, at $4.9 billion, trailing only bitcoin gold, Ripple, bitcoin cash, Ethereum, and bitcoin.
We will dig deeper into Litecoin next time!
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The market is swinging to more and more aggressive highs as bitcoin has traversed down the length of the macro, parabolic bull market. In a very rare event, bitcoin actually managed to break the upper parabolic curve and squeeze out a new all-time high in the upper $11,000s:
Figure 1: BTC-USD, 1-Day Candles, Macro Parabolic Trend
Although bitcoin broke the parabolic trend on the smaller timescales, the chart above shows that bitcoin is still being governed by the parabolic resistance — an outlier in an otherwise parabolic trend. Something very important to note about the parabolic breakout is the amount of volume on the move: It was the highest volume seen at top of a trend in the last two years — it’s continuing to increase.
Figure 2: BTC-USD, 1-Day Candles, Zoomed-in View of Macro Trend
Taking a closer look at the daily candles near the edge of the upper parabolic curve, we see a textbook reversal candle called a “Reversal Doji” (often just called “Doji”). This is a point where volume is high but overall price movement is low. Thus, supply is approximately equal to demand and it poises the market for a potential reversal. Although the current daily candle is still forming, it’s showing an increase in supply (downward price movement) and the volume is continuing to grow as the day moves on.
Figure 3: BTC-USD, 1-Week Candles, Macro Parabolic Trend
And so the story goes on the weekly candles. Sitting at the top of our 2.5 year bull market, a reversal candle is in the process of being formed. Thus, the higher timescales are indicating a balance of supply and demand and offering an opportunity to the market for a reversal. It should be noted that the current weekly candle still has a couple more days left on it and is in the process of forming. For those playing the macro markets, keep a close eye on this candle as it will give hints as to the likely direction of the market in the coming weeks/months.
On a macro scale, support lies on the linear and parabolic trendlines shown in Figure 1 and are likely to alleviate any potential downward movement in the coming days and weeks. As with any market setup or potential trend reversal, wait for confirmation of candle closes before acting and expect the unexpected.
Bitcoin managed to establish another new all-time high in the upper $11,000s.
As of the time of this article, the parabolic envelope is providing solid resistance while the market tries to find solid support.
Macro time frames are beginning to show signs of supply dominating the market. Should the market continue to pull back further, support can be found on the parabolic and linear trendlines outlined in Figure 1.
Trading and investing in digital assets like bitcoin and ether is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.
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