The crypto world was on fire in the early frames of this week, as bitcoin made a convincing move to shoot past support at $7,000 and establish a new perch around $7,300.
The question for traders now is, what caused the sudden move, and how much higher can bitcoin go in the short term?
Bitcoin has worked through a series of sideways grinds followed by steep increases since late June, although nothing to the magnitude we saw this week. Traders nostalgic for the days last year when bitcoin routinely moved $1,000 or more in a single day were were thrilled to see the cryptocurrency rocket $1200 higher in a two day span.
Bitcoin is now rapidly accelerating towards it’s 200 day moving average. There was only one other time in recent history when bitcoin fell below the 200 day MA for a protracted period, and it raced higher to meet it back in April.
chart built by Jason Pfaff in TradingView
There was positive news earlier this week, as Blackrock announced they are studying cryto products and looking more closely at the space. As much as positive news, iwhat has helped also is an ebbing of the rush of negative news we saw almost weekly in the first half of this year. There have been no widspread news of hacks or fraud, nor of impending regulation. While that might not be sufficient in its own right for a sudden surge, it certainly does help create a bullish environment for bitcoin to roam free in.
When bitcoin shot past $7,000, we witnessed an extraordinary rush of volume. Most striking, volume was at multi year lows preceding the move earlier this week. Bitcoin started moving up on the 16th, and volume on the 15th was almost shockingly low.
data from blockchain.info visual built by Jason Pfaff
Volume has since reamined elevated compared to the trend in early July, and this will be a critical metric to contnue to monitor. A move this sharp with such an increase in volume is certainly a move of conviction, and also establishes a new support level firmly around $6300.
Another contributing factor is that other important blockchain network metrics have reamained stable. Several variables, like dollar per user, dollar per transaction and total transactions have all been steady for a few weeks now, after being in decline for months. Historically, higher levels of usage and money flowing through the blockchain have ben bullish for bitcoin, and for the cryptocurrency to move a leg higher in price from here, we will need to see those metrics work their way up incrementally.
chart built by Jason Pfaff data via blockchain.info
Our forecast for a maximum value over the next seven days is around $7600, with a range of 7k - 8k. We construct and run a proprietary model that uses massive amounts of data and many variables to provide an outlook for the range of possibilities for crypto markets in the near future. We also see some elevated probabilities for a maximum value beyond $8000, although those remain low by comparison. We also see a 20% probability, based on simulation results, that we have already seen the maximum value for this seven day period, and that we could just grind our way lower as a result.
model and visual built by Jason Pfaff
Longer term, we remain constuctive on bitcoin for the remainder of 2018. We see a slower roll higher, working our way to a value of $10,300. We think a few of the drivers for that type of move will be a corresponding move higher in users and transactions.
chart built by Jason Pfaff in Trefis