Bitcoin Investment Analysis for April 2017

Bitcoin Price and Volume


April 2017 witnessed the resurgence of Bitcoin. The cryptocurrency endured significant blows in March in the form of Winklevoss ETF rejection and the scalability debate. The SEC refusal of the first ever cryptocurrency ETF saw Bitcoin prices go down by 8% to $900. At this point, the block-size debate that has been around for some time popped up again and has prevented the prices from going up. The market was in a phase of uncertainty, and this provided an opportunity for Ethereum prices to pick up and rise to an all-time high. However, things took a turn for better in April, where Bitcoin prices stabilized and continued to grow steadily over the month.

Towards the end of the month, Bitcoin price reached the all-time high of $1,350 and continued to trend higher reaching $1,800.


When it comes to the monthly volume trends for April across different currencies, we observed a sharp decline in the Bitcoin volumes in USD. This downtrend is due to Bitfinex stopping its deposits owing to its issues with Wells Fargo. Wells Fargo and other major banks have blocked wire transfers related to Bitcoin purchases, and this has resulted in exchanges banning deposits from customers.

Overall, it hurt Bitcoin’s volume, which can be seen clearly in its volume trends. The Chinese volumes, which have already become close to non-existent in the market, dipped further as Chinese exchanges have also followed Bitfinex in the move.

Bitcoin Transactions Summary


April saw Japan signing off on Bitcoin as a legal means of transfer. Even Russia and India have planned to regulate the cryptocurrency and have set up committees to study its structure. The transactional volume from Japan has seen a significant increase since over 60,000 retail merchants have sought to accept Bitcoin for payments.

However the overall volumes experienced a dip in April as observed in the case of exchange volumes, and this is mostly because of the uncertainty that surfaced due to the hard fork debate Bitcoin blockchain was due to undergo.

There is a high correlation between Bitcoin transactions and prices. The decline in TXN activity has reflected in the dip in the prices throughout April. One aspect to note is that the pattern of transaction activity has been fairly consistent when the market was in a sideways trend, signifying real usage of Bitcoin during times of stability.

Market Cap, Volatility, and Exchanges


The Bitcoin market cap dropped below to just under $18 billion in March owing to the negative fundamentals that clouded the market. However in April, there was a steady increase in the market cap, and by the end of the month, with the growth in the Bitcoin prices, the market cap hit $22 million. Currently, at the time of writing this investment analysis, both Bitcoin prices and the market cap are soaring at all-time highs. When Bitcoin prices were struggling, there was an uneven increase in Ethereum prices as investors sought this cryptocurrency as an alternative. Toward the end of the month, Ethereum prices went from $40 to over $80 around the same time Bitcoin breached historical maximums, and this has increased Ethereum’s market share to a great extent, and the price of Ether has been one of the best performings during this period. Ether has been up by over 200% last month and has become Bitcoin’s conjugate in investor’s portfolios.

Regarding volatility, Bitcoin volatility has been the lowest in the month of April with no sudden bullish and bearish swings affecting the market. The market followed a fairly consistent bullish trend with occasional days of bearishness. The volatility of Bitcoin has had lower swing magnitudes as compared to the previous months, which is a very positive factor. In the case of weak or lack of volumes, the market is very volatile, but given that the number of USD volumes has dropped significantly, the prices still held regular patterns with low volatility, which might be because of the lack of any activity owing to the ban on deposits imposed by various exchanges. With the absence of Chinese volumes in the Bitcoin markets, the influence of their automated trading algorithms has slowly decreased and this positively impacted the volatility as these software act up in undesired fashion during sudden market moves and thereby contribute to flash crashes and sudden price drops/peaks.

When it comes to the top 4 US exchanges regarding Bitcoin trading volumes, there have been many developments both on the institutional and infrastructural front. While Bitfinex and Bitstamp still lead the USD Bitcoin markets regarding trading volumes, Bitfinex has had issues through April that impacted the markets adversely. Wells Fargo has decided to block the wire payments toward the customers for activities involving Bitcoin and cryptocurrencies. Bitfinex filed a lawsuit against the major bank for blocking the wire transfers in the following week. However, the exchange dropped the lawsuit and released a statement urging all its customers to temporary halt deposits until they find an alternative. BTC China and OkCoin have also issued similar statements and blocked deposits owing to the foul play on the part of major banks.

Due to these factors, there has been a significant drop in both Bitcoin volumes and transactions. While China’s volume share fell by 28%, USA experienced a severe volume drop of about 40% from the previous month. These volumes have compensated for the sudden boost in volume on the parts of Japan and South Korea. With over 260,000 merchants now legally accepting bitcoins, adoption in the East has gained excellent traction.

Bitcoin values may continue to stay in that range for some time before rebounding and taking a bullish path. The period might last longer depending on the time the nodes would take to update completely to Bitcoin Unlimited.

Fundamental Impacts


April 2017 has been neutral for bitcoins with the cryptocurrency growing slowly but organically over the month. Fundamentally, there hasn’t been much action throughout the month. Let’s look into the factors that are responsible for the low volatility, and that might have an impact on prices in the future.

Japanese and Korean Adoption

Starting in April, Japan has confirmed bitcoins as a legal means of transacting, and this has seen good levels of adoption across the Japanese population as evidenced by the trading volumes of Japanese exchanges. Japan’s trading volume exceeded 2.5 million bitcoins, making it the highest trading volume by currency this past April. With South Korea coming 5th regarding bitcoin values by currency, Japan and Korea might prove to be vital for the currency’s adoption.

The banning of deposits by exchanges

Owing to major banks blocking the wire transfers to customers of Bitcoin exchanges and vice-versa, most exchanges have halted deposits until they work out an alternative arrangement for the same. The trading platforms affected involve Bitfinex and the other main Chinese exchanges. Any activity on this front might turn out to be crucial for Bitcoin price movements.

Ethereum’s price movements

Ethereum is the cryptocurrency that has quickly gained prominence owing to its smart contracts. It has recently eaten into funds directed toward Bitcoin. It has established itself as Bitcoin’s conjugate in investors’ portfolios and hence it is important to keep an eye on Ethereum’s price movement while taking a decision toward investing in Bitcoin.

Technical Analysis


Long-term

The start of May brought massive bullishness in the market with the prices trending higher and closer to $2,000. This holds true for Ether, and other cryptocurrencies as the total market cap of the cryptocurrencies exceeded $50 billion, with Bitcoin leading the way. In the wake of such a trend, we can see that the Bitcoin markets are extremely bullish and the chances of entering from a short side seem small. However, both the Bollinger bands and RSI indicator show that the market is now in a cell region and is slowly tending short-term bearish. However, using the Fibonacci retracement, one can figure out the appropriate entry positions into the market from the long side. Once there can be seen a good amount of buying from the long side, players can immediately enter the market with suitable stop losses.

Short Term

On a short-term scale, the trend has exhibited strict adherence to the trend line depicted. One can enter into a momentum trade when the market turns bearish and aim for the trendline if the market is favorable. Otherwise, buying from the bearish side, even on a short-term range, can prove to be risky.

Trading the Uncharted


The Bitcoin market has broken the all-time high of $1350 and went on to buy & sell in territories that are not so familiar for the Bitcoin populous. During times like this, the market is stuck in indecisiveness, as everyone is unsure of what is to come. The market goes on to become trending active or might undergo violent fluctuations basing upon the liquidity in the market. Whatever the conditions might be, one can recap the technical indicators accurately, and they can reap good profits out of the Bitcoin markets. Let’s look into the key technical indicators and factors to trade effectively in unscaled regions.

Marking the levels

Market levels are necessary but accurate guiding points for participants willing to enter the market. A market level is nothing but the price level at which the market has shown the right amount of support or resistance historically. When trading in the uncharted or untraded region for the first time, it is always important to note the price levels at which the market halts or faces resistance. Similarly, when the resistance pushes the prices down, it is advantageous to observe the rate at which the market rebounds with good support and continues the trend again. These price quotes, which are called market levels, help us provide final entry or exit positions in the market for profitable trades provided we have the understanding of the market momentum.

Fibonacci indicators

People well-versed with patterns would quickly understand that Fibonacci retracement and extension indicators are quite useful in trading markets and long-term investments. These indicators provide us with stop points in a popular market and help us understand when to invest in the direction of the trend. The Fibonacci retracement levels show how far the market would retrace once it undergoes significant movement in one direction. From there, the market is expected to move in the same thrust as the trend. The Fibonacci extension can give us price targets and an idea of the extent of the market’s movement.

Hence, based on market levels and Fibonacci indicators coupled with the RSI indicator, one can navigate through the untraded regions without much danger and be able to reap good returns.

Bitcoin Investment – GBTC vs. Bitcoin IRA


The most important aspect of an ‘Individual Retirement Account’ is the existence of a non-correlated asset as a portfolio diversifier. ‘Bitcoin’ has been regarded as a suitable component for IRA ever since the currency achieved adequate levels of adoption in 2013. Allotting Bitcoin to your IRA can be done in two ways:

Bitcoin Investment Trust

‘Bitcoin Investment Trust,’ launched in 2013 by Barry Silbert, is an open-ended trust that is invested exclusively in bitcoins and derives its value solely from the price of bitcoins. It enables accredited investors with annual incomes greater than $200,000 or assets of more than $1 million to gain exposure to the price movement of bitcoins for a minimum investment of $25,000 without the challenges of buying and securely storing bitcoins.

Bitcoin Self-Directed Individual Retirement Account

Bitcoin IRA allows users of any scale to invest directly in Bitcoin and, hence, directly apes investments in real-time Bitcoin markets. The customers hold the bitcoins directly where Kingdom Trust acts as the custodian and BitGO secure the cryptocurrency. The firm uses Genesis Trading to purchase bitcoins, and the limit of investments is $5,000 pretax dollars per the calendar year.

Half Yearly Comparison of GBTC and Bitcoin Prices

In the first half of 2016, GBTC followed the same trend as the last half year and dipped below the year’s opening price to pick up again in the later part of May. GBTC finished the first half of the year with an increase in $57 per share. The rise in prices was quick with lower volumes trading at every price tick.

Even Bitcoin traded significantly at lower prices than the opening price this year in the first half. However, the prices saw a real rise in May with a 50% Fibonacci retracement level actively holding the prices. Even during this half, Direct Bitcoin Investments won hands down with a $240 increase in price.

The second half of 2016 turned out even worse for GBTC as the price per share continued to fall. The 78% Fibonacci retracement level of the fall proved to be a massive resistance level. Towards the end of December, the GBTC price per share dropped by $9 as compared to start of July.

The story has been different for Bitcoin with the price rising steadily over the months, as illustrated by the ‘Red Bullish Arc.’ Even though GBTC has 0.1% of Bitcoin’s price as a component, it failed to ape the cryptocurrency in the last half of 2016. Bitcoin’s price increased by $220 in the latter part of 2016.

Four months into 2017, GBTC is currently doing very well as compared to last month. While last month, the prices were down by 15% as compared to the start of the year, this month, the prices are up by 65% thanks to the underlying asset’s real recovery. Seasonally, GBTC was expected to pick up around this time, and it is showing positive signs.

The story has been even more active for Bitcoin with the cryptocurrency breaching and setting all-time highs. Bitcoin saw a $848 increase (89%) and has steadily gained value over the course of its consistent adoption.

From its inception, GBTC has risen from $42 per share to $235 per share with a net increase of $193 per share. In the same period, Bitcoin’s price went from $220 to over $1800 with a net increase of $1580. Hence, investment in Bitcoin would have resulted in an increase of 718% of the assets as compared to the 459% increase seen in GBTC.