Bitcoin Analysis: Satoshi Cycle nears end

Bitcoin’s [BTC] sharp rally from the low of $3802 has opened doors for fresh record highs. The currency clocked a high of $4386 earlier today and was last seen trading around $4300 levels. As per coinmarketcap.com, the currency gained 6.67% over the last 24 hours. Bitcoin’s market cap now stands at $71.52 billion.

Satoshi Cycle nears end

Cointelegaph.com says, “As Bitcoin price rises, it comes out of the shadows with more people googling the digital currency, and from that rise in interest the price seems to rise again, and so on and so on in what has been coined the “Satoshi cycle.”

This is what I have been arguing over the last one week… the rally is clearly the product of heightened curiosity among investors.  However, the virtuous cycle is getting out of hand… things are looking hysteric. I say this because over the last couple of days, the fact that a certain currency has tripled in value this year is being discussed by-

• Traditional investors who usually put their money in bank FDs, gold and/or defensive stocks… They are not aware of what a digital currency is or its basic features…
• On a lighter note, I was quizzed by a mid-teenager about Bitcoin yesterday.

The increased curiosity is good news, but also signals that sentiment is getting overtly bullish. This usually works as an advance indicator of a big correction/crash.

Strong Japanese demand is driving Bitcoin higher

• Bitcoin hits another record high on strong Japanese demand, safe haven bid
• Japan has legalized Bitcoin as currency
• Big Japanese companies accept Bitcoin as an official payment method
• Bitcoin exchanges in Japan have implemented zero fee trading
• A Bloomberg report says, “Japan’s Fisco Ltd. is experimenting with selling bonds denominated in Bitcoins, figuring that the digital currency will eventually become a legally recognized financial asset in Japan and help boost its business.”

Technicals - Potential double top or bearish price RSI divergence

Daily chart

4-hour chart

• Consecutive daily candles with long tails/lower shadows signal dip demand. Thus, doors are open for fresh record highs above $4424 levels. However, the 14-day RSI is overbought.
• Furthermore, the 4-hour chart shows a potential for bearish price RSI divergence or double top formation.

Bearish Scenario: A break below the rising trend line support [on 4-hour chart] of $4085 would open doors for a quick drop to $3718 [upward sloping 4-hour 50-MA].

The sell-off would be more intense if prices clock fresh record high before breaching the rising trend line support…. In this case, the bears are seen attacking $3500 levels.