Monday, 18 November 2013

BTC Update - Monday 18th November

Hey Guys,

On Saturday I outlined 3 potential scenarios for bitcoin.  One was up, the second was down and third was kinda sideways.  One of you commented  that this analysis basically covered all the bases.  It's difficult to argue with this but I like to think that it is in articulating how we would deal with each of these scenarios that adds some value. You, of course, will be the judge...

Anyway, as you all know, bitcoin basically chose option One and blew through resistance.  As I write, the market has basically gone parabolic - and since we are at all time highs - this makes technical analysis somewhat challenging.  So what I thought I would do today is look at the market from a different perspective.  Here goes...

What you are looking at here is a weekly line chart (shows the value of bitcoin at the close of every week) charted on a logarithmic scale.  What you will notice is that bitcoin's ascent is actually more uniform than you might suspect. Plotting a rising channel that encapsulates this trend is illustrative because it gives us an appreciation of 2 things:

1. Where bitcoin can expect to be at points in the future, assuming it trends within the channel that has captured its movement thus far.

2. Where it can expect to encounter both resistance and support along the way.

Moving along you will see that we have plotted its predicted value in USD 12, 24 and 36 months into the future, against the base of that rising channel. Further you will notice that on this basis its value seems to be trending up at a multiple of 10 on an annualized basis.

This multiple of 10 is interesting as it seems to crop up all over the bitcoin world.  Client downloads have been increasing at about this rate, Bitpay have been signing on merchant clients at this rate, Blockchain My Wallet subscriptions - the same. And if the bitcoin ecosphere is growing at this multiple I guess it shouldn't surprise us that its valuation reflects the same thing.

In any case, should bitcoin to trade within this channel, it will - as a worst case scenario - be worth $1040 a coin by this time next year - $12,600 by November 2015 and $120,000 by November 2016.  Incidentally, this final valuation would represent just over 1% of the total cash transaction market, measured in USD; and this market share doesn't seem at all unreasonable.

This, of course, is a very nice thought, but in the meantime you will notice that bitcoin is currently trading up near the middle of our trend channel, and from a historical perspective, this has on all but one occasion marked the upper limit of its gains for each individual rally.  It may seem tenuous but the proximity of this rising trend channel line (currently @ around $700) could be the reason we are witnessing this latest surge in buying, as the majority of smart hands realize that getting to this level is a racing certainty.  In any case it's certainly a level we shall be watching carefully.

Finally, and without wishing to bum anyone out, it bears pointing out that even if bitcoin fell like a stone from where we are right now it would have to close below $100, on a weekly basis, to violate the trend channel that it has established.

And on that point we shall toddle off and leave you to ruminate on what you've read here...

Have a great day.

Rob @ BitScan.