Price analysis as Bitcoin fails to rebound

Trading
December 17, 2019

Fundamentals

CoinShares Research, a London-based company, noted in its latest research piece that two-thirds of global bitcoin mining takes place in China. The Southwestern province of Sichuan controls as much as 54% of the crypto network’s processing power. The remaining 35% of other Bitcoin mining centres extend from the United States to Russia and Kazakhstan.

The reported share of hash rate is the highest recorded by CoinShares since it started this kind of research around two years ago. China’s success in this field may be due to the country’s greater deployment of modern mining technology, said Chris Bendiksen, CoinShares’ head of research.

“More than anything miners have been taking advantage of increased cash flows, especially in spring and summer, from rejuvenated Bitcoin prices to reinvest in more powerful and more efficient mining gear – both to secure their share of network hashrate against the advent of next-generation hardware, and as an efficient preparation for the upcoming block reward halving,” said Bendiksen in the report.

On the other hand, the hash rate market share of the blockchain and semiconductor leader Bitmain has plunged from 70% in June to around 66% now. According to Bitmain’s estimates from 2 years ago, the company had a market share of roughly 75%.

“Bitmain needs fresh inflows of capital mainly to heal a series of self-inflicted wounds caused by poor strategic decisions,” wrote Bendiksen and Gibbons.

CoinShares added that, according to the current BTC prices, the average miner can profit. On the other hand, that may not be the case in spring 2020 as CoinShares believes that next year the equipment will matter more.

Elsewhere, Bloomberg reports that investors who own 1,000 to 1M BTC (also known as “whales”) now control 42.1% of the total supply (up from 37.9% in 2017).

The consolidation of Bitcoins among whales may lead to more market swings. According to the research conducted by Flipside Crypto, only about 3.5% of all addresses are actively trading weekly. John Griffin, a finance professor at the University of Texas, thinks that this could have a serious impact on the market.

“The problem with a few large players holding crypto is that when they sell they can easily push the price down, which makes the market susceptible to rapid swings,” said professor Griffin.

It will not be the first time that the biggest wallets have affected the market. For this reason, Bitcoin showed extraordinary volatility in 2019. For instance, in October, the price of Bitcoin rocketed from $7,500 to nearly $10,000 over a few days.

Additionally, it appears that millennials (25 - 39 age) prefer to invest in Bitcoin and crypto rather than popular stocks. This is according to the survey done by stock brokerage firm Charles Schwab, which shows that the Grayscale Bitcoin Trust, a Bitcoin investment product offered by Digital Currency Group, is 1.84% owned by millennials. For reference, Netflix stands at 1.58% and Microsoft at 1.53%.

Understandably, the older generations prefer traditional investment instruments, such as shares of Amazon or Apple. 

"There is a generational shift in how individuals are approaching investing," said Barry Silbert, founder and CEO of Digital Currency Group.

Technicals

Bitcoin has continued to record moderate declines as the price action approaches key short-term support around the $6800 mark. During the previous week, the world’s largest digital coin was trading mostly in the zone between $7100 and $7600. Over the weekend, the price created a new two-week low of $7007. 


BTC/USD daily chart (TradingView)
BTC/USD daily chart (TradingView)


More importantly, the price action closed the week below 100-WMA, which now comes as a resistance at $7250. Obviously, the price action is in a clear downtrend as we approach the key short-term support, in the context of the confluence of the ascending trend line (the purple line) - which connects 2019 higher lows - and the descending trend line (the red line). On the daily chart, Bitcoin trades comfortably below both daily moving averages

A break of the $6800 zone is likely to pave the way to a test of $6500, which is a 6-month low. However, the bears will have their eyes set on the key short-term target of $5800, which is the horizontal support that has played an important role in the past.

On the upside, the $7500 horizontal resistance will continue to play a role. Since we are trading in the low $7000s, we can expect both DMAs to catch up with the price action and fall below $8000 soon.

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