Half a step ahead or one step ahead

This is the BTC/JPY daily chart as of October 12 (technicals are the 5-day moving average and the Ichimoku cloud).

This month there have been many positive headlines related to cryptocurrencies, and BTC has been driven by favorable investor sentiment with widespread buying.

In October, a minor pullback occurred at around 500,000 yen where the cloud top overlaps with a psychological level, but there has been no international tightening trend following last month’s Chinese ICO ban; in contrast to JP Morgan CEO Jamie Dimon’s stance, it was reported that Goldman Sachs, a U.S.-based investment bank, is considering entering BTC markets.

On October 4, Lloyd Blankfein CEO acknowledged the report on Twitter, which weakened resistance at the upper price levels and BTC/JPY broke through 500,000 yen.

I had thought buying interest would wane after that, but ongoing new funds flowing into altcoins, some of which flowed back into BTC, pushed BTC up to 650,000 yen.

■ High expectations for altcoins

Even after breaking through 500,000 yen, BTC’s price action remains strong. The optimism around altcoins continues to draw funds into the entire cryptocurrency market.

First to be highlighted is the concern over BTC’s potential for a hard fork.

BTC may fork, and a new cryptocurrency called Bitcoin Gold is expected to emerge following Bitcoin Cash. This new currency is expected to be distributed to Bitcoin holders, which has contributed to BTC’s price surge.

Furthermore, Ripple, a payment system, is increasingly expected to be used for international interbank transfers, and there are rumors of a major announcement at the SWELL conference beginning on October 16 (attended by former Fed Chair Ben Bernanke).

Ethereum is also anticipated to upgrade with a metropolis update that includes zero-knowledge proofs, which is likely to boost market expectations for cryptocurrencies.

■ Is BTC a bubble?

Given the headlines above, one might expect a move toward the 1,000,000 yen mark, but please wait a moment.

I question whether forks are driving price increases.

One fundamental characteristic behind BTC’s price formation is the maximum supply.

However, if forks are allowed repeatedly in this manner, BTC could be perceived as having no supply cap.

What if BTC forks without limits?

Like ICOs, it could increasingly be viewed as a scam.

Using BCH as a reference, forks allow holding both coins and rising prices, which is not hard to imagine, but冷静にこの分岐騒動を見れば、BTCの信用が剥離しかねません。

What I am most concerned about is the market perceiving a bubble.

Whether BTC is in a bubble is debatable, but a bubble can only be confirmed once prices actually crash.

However, one trigger for a price crash is when market participants clearly believe that the fair value is far below the current price, and signs of overheating that clearly demonstrate this include “continuous, irrational price rises.” Forks causing price rises fit this description.

Personally, I feel that when a market rises too quickly, tail risk of a crash increases, and steady progress with regular adjustments tends to prolong the ascent.

Thus, I believe BTC has repeatedly undergone about two months of correction due to market self-fulfilling dynamics.

■ View for early October

Given the above, I expect a large correction once more this month. Before and after Bitcoin Gold forks, the pattern of “buy on rumor, sell on fact” may be observed.

My main scenario is to buy a half step ahead and sell a step ahead, and at moments that look like a peak, execute a genuine shorting strategy. However, given the ongoing overheating, I will avoid easy counter-trend bets and wait patiently for a trend reversal.

BTC is a high-risk investment. Make investment decisions at your own risk.

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【Author】

Kawada Saiō (Kawada Saio)

Traders Securities Market Department, Dealing Section

Born in Geneva, Switzerland. Graduated from Keio University.

Having traveled to many countries, his fan mentality analysis based on personal experience is persuasive.

Utilizing behavioral economics learned in youth, he analyzes psychological biases of market participants theoretically and applies them to trading.

Hobby is shogi (Japanese chess) and he has an amateur high-dan level; the mid-game maneuvers also help him foresee the next move in the market.

“The masses are always wrong” is his creed.

【Disclaimer】

The Bitcoin market information and other contents provided on this site reflect the author’s personal views and do not guarantee the accuracy or safety of the content by the author or Traders Securities Corp. or the company. Also, such information is intended to provide reference only and does not constitute an endorsement of any particular investment action or strategy regarding cryptocurrencies. Please make your own final investment decisions. Any gains or losses from investments belong to the investors. The author, Traders Securities Corp., and the company are not responsible for any damages arising from this information.

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