January 29, 2019

Where is Bitcoin going?

Most of the past week’s interesting developments on the crypto front came from bitcoin.

To begin with, on Friday it became clear that NYSE Arca had filed all the necessary paperwork for the launch of Bitwise Bitcoin exchange-traded fund. If Bitwise Asset Management’s proposal wins the Securities and Exchange Commission (SEC) approval, it will make history as the first bitcoin ETF to hit the US market. It is, however, widely expected that any decision would be delayed by the ongoing US government shutdown.

A more detailed look into the Bitwise ETF proposal shows that the bitcoins would be stored in a regulated third-party custodian. Pricing data would be drawn from a number of trading venues, both spot and futures in terms of settlement. In a bid to prevent fraud and price manipulation, the company adopts an interesting methodological approach: prices will be weighted more heavily towards exchanges with greater trading volume in the prior hour. With this move, Bitwise clearly aims to address concerns about market manipulation, which have resulted in previous crypto exchange-traded funds being rejected by the SEC.

Interesting news also came from Dukascopy, one of the top Swiss online banks, which announced its partnership with Bitstamp. From now on, Dukascopy’s clients will have the opportunity to fund their accounts with bitcoins, which will be converted into US dollars; the latter can then be used to trade FX and precious metals on the Swiss FX Marketplace, the company’s proprietary trading platform. Clients will also have the chance to withdraw their funds in crypto. To facilitate the transaction, fiat money will be converted into bitcoins and sent back to their wallets.

After the streak of good news, JP Morgan released a not so positive report stating that mining is no longer justified in terms of costs at the current price of bitcoin. According to the bank’s analysis the cost of mining the benchmark cryptocurrency averaged $4060 around the globe in the last quarter of 2018. Therefore, the violation of the psychological $4000 support in late November, made bitcoin mining irrational for most people. One of the few that can be excluded from these calculations are the Chinese miners, who incur a cost of $2400 to mine one bitcoin.

Technically speaking, bitcoin has been in a broad consolidation after the sell-off which took it all the way down from 6500 to 3200. Yesterday’s breakout at the 3550 support exposes 3460 for an initial test. Our expectations are that the latter will not limit the downside, and the benchmark cryptocurrency will sink deeper to 3200, the mid-December low, which stopped bitcoin’s heavy fall at that moment.

Whatever happens at the important from technical perspective 3200 will determine the next major move. If the support holds, the cryptocurrency could quickly bounce back to the 4200 resistance area, which can be easily spotted on the chart. A potential breakout at 3200, which is our preferred scenario, will just reinforce the long-term bearish case for bitcoin. If this happens, the major crypto will find it hard to hold its ground and an impulsive wave will take it to 1826, a low not seen since July 2017.