In my 2018 articles on Bitcoin (OTCQX:GBTC) I was largely negative on the cryptocurrency (COIN) as I was saw the expectations of crypto investors were pegged on hope rather than hard facts. I say this as in 2018 analysts were harping on the fact that Bitcoin was the immediate solution to a lot of problems in the future. However, I believe this to be false as the asset class can only grow if it receives recognition from the regulatory authorities it was initially meant to circumvent. However, I have no doubt that the underlying technology of blockchain is amazing and has the potential of revolutionising our everyday lives. Nevertheless, this is irrelevant to investors as they would only like to know whether the cryptocurrency’s price will be rising or not in 2019. Thus, to answer this I shall look at the fundamental news affecting Bitcoin, whilst, also analysing the chart using technical analysis tools. This is as I believe the cryptocurrency is at a crossroad where it is simply a make or break situation for it.
SEC Delays Decision on VanEck-SolidX Bitcoin ETF:
The U.S. Securities and Exchange Commission extended the review period for VanEck’s Bitcoin ETF to 27th February 2019. This serves Bitcoin aficionados with a huge blow as the VanEck proposal differs from other cryptocurrency applications. I say this as the VanEck ETF is fully reliant on Bitcoin itself, unlike the other applications in which the ETF's are reliant on the futures market. Thus, I believe this delay will cause the price of Bitcoin to fall further as this is one of the biggest hopes crypto traders have. This is as an ETF approval is expected to trigger a price rally. Thus, the reason I say 2019 is a make or break situation for the cryptocurrency is because the SEC is not allowed to further extend the review period from 27th February 2019. Hence, the decision will finally arrive and if the ETF is rejected then this would prove detrimental to the value of the cryptocurrency and the asset class.
Rising production costs:
As covered in a prior article Bitcoin’s price is currently right above its Cross of Death point. However, I believe Bitcoin may have to up its price game in 2019 to stay above it's Cross of Death point. I say this as the production cost of Bitcoin mining is rising. This is as according to a recent study the price of Bitcoin needs to be around the $6,500 to $7,000 range for it to be profitable to mine in 2019. Hence, due to this I expect a lot of digital currency-focused business to shrink their mining capacities or close altogether. This is as last week reports surfaced that Bitmain, which designs ASIIC chips for Bitcoin mining, has been hit by huge losses due to the price of Bitcoin collapsing. Moreover, the company is expected to lay off a sizable portion of its employees. Thus, the big question Bitcoin investors ought to ask themselves in 2019 is till what extent will the increase in cost of mining affect the asset class.
Not all is dull and gloomy in the cryptocurrency market. I say this as even though cryptocurrency prices are trending downwards, there are some crypto admirers who are not giving up on the asset class. Thus, due to this there are still numerous positive developments occurring that are helping build necessary infrastructure for the crypto market which can allow this asset class to thrive in the future. This is a positive development as we traders have to understand that Bitcoin and its peers are still in their relatively nascent stages. Thus, if individuals can solve the limitations of the asset class, then there is a possibility of the crypto market once again coming to life. However, most of these efforts won’t have an impact on the cryptocurrency market until 2020 as they shall take time to develop.
To say Bitcoin has had a rough 2018 would be one hell of an understatement. I say this as the cryptocurrency closed the year 2017 on a highly positive note. This is as the cryptocurrency ended December 2017 on a high of $19,891. However, January 2018 turned out to be a painful start as Bitcoin formed a Bear Sash candle pattern. This in turn triggered a fall that continued till December 2018 which resulted in Bitcoin losing roughly 81.24% of its value.
The cryptocurrency’s daily chart indicates to investors that in the coming weeks, Bitcoin shall be trading in a box range pattern. I say this as I do not expect any significant move to the upside or to the downside up until the decision from the SEC is delivered on February 27th. Moreover, we see that the cryptocurrency is presently trading below its Ichimoku cloud pattern which clearly shows that no significant upswing can be expected any time soon. Furthermore, the cryptocurrency’s daily chart has formed a ‘Doji’ candle pattern after forming a large bearish candle. This candle pattern psychology indicates to investors that the bulls have managed to neutralise the bearish strength. This in turn shall ensure that Bitcoin’s uses the current price level as a support for the foreseeable future.
On the price target front, I expect the upper line of box range pattern to be between the 61.8% and 78.6% fibonacci resistance levels. The 61.8% fibonacci resistance level is at $4,183, whilst, the 78.6% fibonacci resistance level is at $4,301. On the support front, I expect the lower line of the box range pattern to be between the 61.8% and 78.6% fibonacci support levels. The 61.8% fibonacci support level is at $3,680, whilst, the 78.6% fibonacci support level is at $3,569. However, if the cryptocurrency does breach the 78.6% support level, then I do not expect the fall to go beyond the 100% fibonacci support level at $3,427.
The big picture:
Overall, I am leaning towards the bulls and bears having a tug of war which will result in Bitcoin trading in a box range pattern. This is driven by the fact that the technicals support a sideways formation in the commodity. However, whichever way you decide to trade, do ensure that you utilize trailing stops, as this shall aid in capital preservation.
Good luck trading.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.