Feb 09, 2020 - Posted by Darren Chu, CFA of Tradable Patterns

Bitcoin (BTCUSD) tacked on further gains this past week, and is now retesting the psychologically key 10k whole figure level. Significantly, BTCUSD has broken above a downtrend resistance line (on the weekly chart) connecting the December 2017 and June 2019 peaks. BTCUSD is also continuing a narrow upchannel (on the daily chart) after having completed a week or so of consolidation just above prior downchannel resistance (on the daily chart). The bigger picture is of BTCUSD having completed a near 7 month consolidation, and resuming a major uptrend, reinforced by the December 2019 low being significantly higher than the December 2018 low. Odds are increasing for a test of the June 2019 high in the first half of this year. The weekly and daily RSI, Stochastics and MACD are bottomish, rallying or consolidating recent gains, with the weekly and daily Stochastics overbought suggesting rising risk for healthy profittaking this week.

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Bitcoin Fundamentals

BTCUSD saw its safe haven status kick in again January on an escalation in fear over the Wuhan Coronavirus along with rising US-Iran tension. Following the US assassination of the highest ranking Iranian military officer who was arguably the 2nd most powerful Iranian government official and the most popular (among Iranians), media coverage has calmed for now, but the risk of another serious flareup remains high as Iran begins enriching its uranium to the lower end of the weapons grade range. Despite efforts at de-escalation in the tension from some within both the US and Iran government, as well as other world leaders and diplomats, the drumbeats for war against Iran is increasing among many in the US administration and that of its allies (i.e. Saudi Arabia and Israel), and across much of mainstream US media, just as with during the lead up to the Iraq war. Numerous other geopolitical conflicts around the globe have taken a slight backseat in media reporting in the past month due to the Wuhan Coronavirus but warrant continued close monitoring.

Even with BTCUSD’s recent strong selloff from this past June’s peak to December, Bitcoin’s hash rate is back near record highs. The hash rate reflects the amount of miner investment and processing power used in producing Bitcoin, with greater commitment arising from increased confidence in the value of their production. The competing Ethereum, Bitcoin Cash and SV, Litecoin, have not seen a corresponding rise to record levels in their hash rate. Bitcoin’s transaction activity (and USD-equivalent value) for 2019 was also at a record high. Besides BTCUSD acting at times as a safe haven due to geopolitical tensions, it continues attracting interest as a store of value digital version of gold, seeing inflows on increasing devaluation pressures on fiat currencies (given the currency wars and the roughly 30% of global fixed income markets yielding negatively), although this correlation with gold continues fluctuating wildly due to other factors more specific to regulatory pressures and to competitive threats from competing cryptocurrencies (particularly of a more centralized nature).

BTCUSD bulls are anticipating the third Bitcoin block reward halving (which will reduce the amount of new BTC supply) May 2020 but which has historically (for the 2 other halving events) seen bull runs begin roughly 1 year in advance of the halving date. Actual use of BTCUSD for micropayments (as opposed to speculating) has fallen since March 2019 on the Lightning Network, as incentives for those that operate network nodes (which requires tying up their bitcoin) are negligible, causing node operators to leave for Proof of Stake (POS) blockchains.

Industry Fundamentals

Tencent announced just before Xmas that it is forming a cryptocurrency research unit, likely assisting with the China digital Renminbi coin launch. Tencent-operated WeChat Pay has a 40% market share in China’s mobile payments industry, and 900 million users globally as of 2017 (with the majority in China as WeChat Pay is available only in a few countries outside of China)… Click here to read the rest of the Industry Fundamentals, along with technical and fundamental analysis of Ethereum and Ripple.