Bitcoin (BTCUSD) spent the past week back above the psychologically key 10k whole figure level, continuing an ongoing 2 month plus consolidation around 10k.  BTCUSD is increasingly close to resuming a bull flag (on its weekly and daily chart), with any resumption of the bull markets since the November low likely coinciding with Ripple (XRPUSD) and Ethereum (ETHUSD) reclaiming (after breaking several weeks back) major prior supports at 0.3 and 200 respectively.  Although the weekly MACD has just negatively crossed, odds remain high for the weekly MACD generic sell signal being a false one.  BTCUSD’s monthly chart still suggests that the June-August pullback has been merely consolidation within a major uptrend, as opposed to the beginning of a reversal of the uptrend since last December.  A decisive continuation of the bull market is waiting for the weekly MACD to flatten, with the catalyst potentially being the highly anticipated Sep 23rd launch of BAKKT.

Bitcoin Fundamentals

Increasingly, BTCUSD is acting as a safe haven digital version of gold, seeing inflows on geopolitical conflict (e.g. the escalating US-China trade war, tension in the Middle East) and increasing devaluation pressures on fiat currencies (given the currency wars and race to negative interest rates even in the US treasury market).

BTCUSD bulls are anticipating the third Bitcoin block reward halving (which will reduce the amount of new BTC supply) May 2020 but which has historically (for the 2 other halving events) seen bull runs begin roughly 1 year in advance of the halving date.  The Bitcoin blockchain itself continues to benefit from Lightning Network-related scalability improvements. 

Industry Fundamentals

With the People’s Bank of China (PBOC) having announced in the past several weeks its near readiness to launch what is essentially a digital Renminbi, but centrally controlled by the PBOC, existing cryptocurrencies are about to see further competition in China as the Renminbi stablecoin will likely see rapid adoption given the major Chinese fintech players (like Alibaba, Tencent) and banks (ICBC, Bank of China, Agricultural bank of China) supporting the rollout.  The PBOC has been working on the project for 5 years, but appears to be expediting its launch in response to the Facebook Libra announcement.  The digital Renminbi is meant to replace the paper and coin circulation, and to further internationalize the Renminbi.

BoE Governor Mark Carney is further validating the idea of central banks incorporating aspects of cryptocurrencies and blockchain, by having suggested in August that the world may need to move away from the current world reserve currency – the US Dollar.  He’s used Libra as an example of the type of digital currency collateralized by a basket of fiat currencies that could lessen the world’s dependency on and impact from just one fiat currency. 

While Facebook continues to get bogged down by robust pushback from regulators, central banks and politicians, a bit more than a month back, Walmart hopped on the stablecoin idea by applying for a patent for its own, which will operate within its ecosystem (including that of partners) as a way to incentivize shoppers to pay for purchases through the stablecoins, earning discounts and collecting loyalty rewards.  Like Libra, the Walmart stablecoin will also facilitate low or no fee remittances (helping bring banking to the unbanked), but will allow holders to earn interest (unlike Facebook’s where the interest goes to the Libra Association members).  Slightly different from Libra, the Walmart coin will likely only be backed by the USD.  It will also produce competition to credit cards as shopper credit will be determined through their shopping patterns (as captured by the use of the Walmart coin), and will restrict purchases of certain items normally restricted by age (e.g. cigarettes).  Walmart’s stablecoin could gain greater traction than Libra in its first few years particularly with it getting less regulatory pushback so far and its massive network of 11500 stores across 27 countries, visited each week by 265M customers.

Libra’s target launch in the first half of 2020 is increasingly ambitious given all of the mostly regulator-related resistance it’s encountered so far.  Crypto purists are critical of Libra’s centralized nature, which paves the way for censorship and potential abuse of user information.  Problematic for Facebook is that much of the unbanked resides in countries where either Facebook or crypto is currently banned.  Key investors like Visa, Mastercard, Paypal, and Uber have injected USD 10M each to become members of the Libra Association and to manage their own node.  The objective is to have 100 investors (from a variety of industries, including telecom, media, and e-commerce) with 27 names already on the list. 

Banks have passed on Libra so far as some (e.g. JP Morgan, Mizuho, Bank of Tokyo-Mitsubishi UFJ) are increasingly looking at rolling out their own coins.  Banks will be able to launch stablecoins on IBM’s World Wire for instance, and can use Stellar Lumens directly as a bridge currency between different fiat currencies.  Ongoing anticipation is building for the coins being developed by other leading messenger apps (i.e. Line, Kakao) as well. 

The competition within the Bitcoin futures industry should be about to heat up as BAKKT (operated by the world’s 2nd largest exchange group by market value – IntercontinentalExchange) launches Sep 23.  TP ICAP – the world’s largest interdealer broker – announced in mid-June their intent to launch a digital assets desk, with the service limited to Bitcoin futures initially.  Fidelity’s institutional crypto trading offering meanwhile is available (or in testing) for select clients, with retail brokerage giants Etrade and TD Ameritrade also preparing to launch trading in a few top coins. 

The market is increasingly shrugging off the fears around Bitfinex covering up losses with funds earmarked for backing Tether (USDT), especially as it has apparently already received commitments for USD 1B in its current raise to offset funds frozen by US, Polish and Portuguese authorities.  With liquidity on USDT significantly higher than newer, competing USD-backed, audited stable coins due not in small part to USDT enjoying first-mover advantage and the network effects from having the longest established history, the market appears to be largely sticking with using USDT which is listed on more crypto exchanges and offers superior liquidity. 

A race continues to launch STO exchanges and consultancies ahead of increasing regulatory clarity on STOs.

Click here to read the technical and fundamental analysis of Ethereum, Ripple

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Darren Chu, CFA
Darren Chu, CFA, is the Founder of Tradable Patterns. As seen on Bloomberg, Refinitiv (Thomson Reuters), Factset, Interactive Brokers, Inside Futures, Amazon, Liquid (Quoine), EXMO and Zerohedge. Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and cryptocurrency markets can be analyzed to enhance trading performance. Tradable Patterns’ daily newsletter provides technical analysis on a subset of three CME/ICE futures (commodities, equity indices) and spot FX markets, which it considers worth monitoring for the day/week for trend reversal or continuation. Crypto Weekly Outlook offers technical analysis on Bitcoin (BTCUSD), Ethereum (ETHUSD) and Ripple (XRPUSD or XRPJPY) and attempts to provide clues as to what might happen in the coming week. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia. Tradable Patterns content does not constitute an advisory and does not make recommendations, but can supplement your own analysis. Please do your own due diligence ahead of any trades.