After a week of important news developments and bullish price action, the overall cryptocurrency market capitalisation is back above $220 Billion. While many are proclaiming the bear market is finally over, others are more cautious and see some key challenges which remain to be overcome. Many analysts are forecasting the $240 Billion market cap as an important resistance point and the descending triangle pattern which has been forming since January in Bitcoin has been the catalyst for numerous sharp reversals during the year. As we come to the end of 2018 Q3 and the descending triangle pattern nears its end, the next few weeks are likely to be highly revealing for future market expectations.
Key News Developments
Bitmain Filed for IPO
The key news of the week was Bitmain filing for an IPO with the Hong Kong Stock Exchange (HKEX). The most recent pre-IPO financing round valued the company at $14 Billion with the main investor being Sequoia. Bitmain has long been the most dominant force in cryptocurrency mining. Bitmain’s mining market share has been decreasing which can be seen in the graph below but Bitmain also generates revenue from operating mining pools and designing, assembling, and distributing mining hardware. Bitmain operates the two largest mining pools, BTC.com and AntPool. However, Bitmain has undergone huge losses in a significant altcoin portfolio which includes a holding of over 1 million Bitcoin Cash. Pre-IPO documents show Bitmain as being a profitable company but used cost basis accounting. Cost basis accounting values the altcoin portfolio at the cost the assets were purchased at. A more suitable mark-to-market accounting procedure which values the altcoin portfolio at recent market prices would actually have Bitmain as a loss-making company for 2018. Bitcoin Cash surged 20% on the news of the IPO.
Coinbase Offers Coinbase Bundle
Coinbase has launched their Coinbase Bundle option which enables users to buy a market-weighted basket of the five cryptocurrencies which Coinbase supports. Supported cryptocurrencies include Bitcoin, Litecoin, Ethereum, Bitcoin Cash, and Ethereum Classic. Minimum purchase amount for this option will be $25. Earlier, this year, Coinbase launched an index fund which tracks the price of a market-weighted basket of cryptocurrencies which is regularly rebalanced. The launch of Coinbase Bundle further paves the way for the everyday consumer to own and expose themselves to the price of cryptocurrencies.
1Broker Being Investigated by the SEC
The SEC has filed charges against 1Broker, a securities dealer that enables users to speculate on the prices of securities in real-world markets with their Bitcoin. The SEC is investigating 1Broker due to the securities not being listed on a national exchange and 1Broker not being registered as a security-based swaps dealer. 1Broker are currently handling the situation in a competent and professional manner. 1Broker are keeping regular communication with their clients and are seeking to facilitate withdrawals for clients.
Bitcoin Price Analysis
Bitcoin has recorded another bullish week. Price action has continued to form higher lows and has twice tested resistance around $6850. RSI has also mostly been forming higher highs and higher lows for the week indicative of an increase in buying pressure. The MACD is currently forming a centerline crossover to the upside, a bullish signal showing increasing momentum for buyers. The descending triangle pattern remains the dominant pattern for investors and traders to monitor. Many speculators are forecasting two scenarios.
The first scenario is price action breaks out of the pattern to the upside and it marks the start of a significant bull run. The recent bullish price action supports this outlook. This is the scenario that many traders are hoping for.
The second scenario involves a breakdown in price action. What happens in the typical descending triangle pattern is price action repeatedly fails to overcome resistance at the downward trend line and after numerous tests, price action falls below the lower support level and breaks hard below. In this case, the lower support level is likely to become resistance and price action may struggle to get back above this level. This scenario supported by a large number of times price action has failed to get above the downward trend line and the bear market which has occurred during 2018. If this scenario plays out, it is likely we will see a further prolonged bear market with some analysts forecasting drops to $3000 to $4500.
There is also a third scenario which many are not considering. The third scenario involves a gradual breakdown of the pattern from price consolidating and trading in a range. This scenario is supported by the 20-period average daily volume reaching its lowest level for the year during the week on a number of exchanges. The most recent price action and RSI appear to be forming a lower high which further supports this scenario playing out.
Traders can not say which of these three scenarios will play out. Daily price action should be monitored for indications of how price will unfold. Price is currently trading at $6660 at the time of writing.
Ethereum Price Analysis
Ethereum price action has also been recording bullish movements during the week with both price action and RSI forming higher highs and higher lows. Most gains have had volume above the 20-period daily average volume with most losses having volume the 20-period daily average volume. This shows more strength behind the buyers.
Similar to Bitcoin, the most recent price action seems to be forming a lower high along with RSI. MACD continues to converge upwards toward the centerline indicating increasing buyer momentum. A key level to monitor is $270 which was previously an important area of support and is likely to be a case of support turned resistance. Price is currently trading around $225 at the time of writing.
Altcoin of the Week- Bitcoin Cash
Bitcoin Cash was one of the best performing altcoins of the week. The clear catalyst for the surge in price was Bitmain filing for an IPO with the HKEX. The volume for the surges was huge, approximately four times above the 20-period average daily volume. This shows real strength behind the move. Price is currently retracing but many of the technicals remain bullish. The MACD is approaching a centerline crossover to the upside, a sign of increasing buyer momentum.
With Bitmain owning over 1 million Bitcoin Cash, there is a clear link between the IPO filing and the increase in price. Bitmain has put a huge amount of its historical operating cash flow into Bitcoin Cash investments as seen in the graph below. Although it has suffered huge losses on these investments, funding raised via an IPO brings the potential of further investments or simply the holding of the large investments already made. Bitcoin Cash is trading at $538 at the time of writing.
The Bitmain IPO was the primary news development of the week. It marks arguably the most successful cryptocurrency company taking the step to make their company public. As the IPO progresses with Billions expected to be raised, will Bitcoin Cash have further price surges in store? Many in the cryptocurrency community are vehemently against the Bitcoin Cash project and believe in its eventual demise. But with one of its largest advocates and investors ready to take on public capital, it is undeniably a positive development for the project.
In terms of the overall market, the key pattern to monitor remains the descending triangle pattern. We have detailed three potential scenarios which could play out and with the pattern approaching nearing its end, we could see one of these play out shortly. With Bitcoin being a dominant market leader representing over 52% of the total market capitalisation, whatever scenario plays out will have a huge overall impact on the rest of the cryptocurrency market.