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Sunday, March 19, 2017

Bitcoin Analysis and Future Roadmap


Image result for BitcoinBitcoin is a digital currency - one of many. However, it is the first digital currency of its kind with a market cap of ~$18 B, with a finite supply. This means that there will be a time when no new bitcoins will be created, which is very important for any thing of value. Bitcoin does not have any central bank or country controlling it. Hence, it is the true currency for a society without borders. Bitcoin price has sky rocketed since its launch in 2009. For details on Bitcoin basics, please go here

Bitcoin today serves multitude of functions ranging from a store of value to medium of purchasing goods. Its underlying technology, known as "Blockchain," has found many uses other than pure currency usage. In fact, many financial and other institutions are exploring the use of Blockchain in their industries. This technology promises instantaneous registration of financial transactions e.g. purchases or trade settlements. Some of the prominent Bitcoin accepting merchants include:


Recent Developments

Recently, Bitcoin has come under significant selling pressure - declining from ~1300 to ~950 in few days. This selling is coming primarily from speculators who bought the currency in the hopes of SEC approval of a Bitcoin ETF (link), which did not happen, and discussion of a new parallel currency - Bitcoin Unlimited. We have seen similar periods of Bitcoin despair in the past, especially towards at the beginning of 2016 when many Bitcoin enthusiasts proclaimed that the currency is dead and was a good experiment (link). At that time, Bitcoin price was $400 and today it is $1000.

Another apprehension is slower processing of Bitcoin transactions. However, its something that can be resolved and should be resolved. Now the interesting thing from this recent Bitcoin pessimism is that this might be setting-up a great buying opportunity for long-term investors, who want to diversify their portfolio.

Future projections

Bitcoin trend remains up. We started buying Bitcoin after our proprietary Market Classification Model (link) showed a trend change in late 2015. The trend remains up and recent surge in pessimism along with decline in Bitcoin price could provide the fuel needed to start the next rally phase.

From an Elliott Wave perspective, Bitcoin potentially completed a longer-term 1st and 2nd waves in 2015. Since then it went up in a minor degree first wave. Either recent decline is 2nd wave of minor degree or we are experiencing a sequence of 1s and 2s. In either case, once recent correction is complete, we should see a continuation of the uptrend and with substantial force.

Following chart shows the discussed wave structure:


From a sentiment perspective, recent declines in enthusiasm and rejection from SEC supports this interpretation of the wave structure. An approval of the Bitcoin ETF from SEC would have suggested a major top in Bitcoin because of mainstream approval.

Other Developments

Along with technical reasons, there are a multiple geo-political and policy reasons that could really support Bitcoin prices, including:

  1. Elections in Europe, especially France
  2. Impact of US policies on the world e.g. protectionism 
  3. Potential inflation scare
  4. Downturn in U.S. economy. U.S. economy has been rising for the past 8 years. A bear market/recession is overdue.

Where can it go? 

If Bitcoin starts rallying, it could touch $3K, followed by $5K in 1-2 years. Longer-term, there are projection for $13K. But we will see the market action one day at a time. We will continue to evaluate our indicators to decide when to add and keep an eye on the Market Classification Model to identify exit point, if Bitcoin enters a bear market.

In today's investment environment where Bonds and Stocks are very expensive, Bitcoins provide an alternative for investors to not only diversify their portfolio but also potentially grow it at a fast pace. Its like an options strategy, in case you need to protect yourself with diversification but with one big advantage - there is no expiry date!

Our services

At Understand, Survive and Thrive, our goal is to produce consistent, uncorrelated returns using unique analysis techniques, that will enable your portfolio to beat the market over any economic cycle and provide you the peace of mind to stay with the strategy. We don't believe in beating SP500 every single month. And therefore, if someone wants to try our strategies just for the short-term, we will suggest that they will be disappointed at some point. Like one can use Bitcoin for investment and for diversification, one can diversify their investments without Bitcoin and that's our goal.

If you are interested in investing, you can register below and we will send an update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription.

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