Bitcoin Cash Price Analysis - Upcoming fork tackles erratic network

Bitcoin Cash (BCH) now has a US$10.4 billion market capitalization, making it the fourth largest cryptocurrency. Trading volume re-asserts this position, with ~US$344 million in trades during the past 24hrs. However, the network has been suffering from some erratic behavior, and has had very few transactions per day.

BCH was launched in August 2017, and is a fork of the Bitcoin (BTC) blockchain and protocol. The alternative cryptocurrency promised to provide a payment network that cost less than BTC, which has suffered from rising fees during and after the end of the scaling debate.

However, BCH has suffered from a major issue since it’s launch. As a fork of Bitcoin, BCH directly competes for mining hashrate. An Emergency Difficulty Adjustment (EDA) was implemented as a relatively safe and minimal change to allow Bitcoin Cash to survive by adjusting difficulty downward if it has only a small proportion of mining power. The EDA has resulted in wild block time fluctuations. This is problematic because it prevents network consistency and reliability for users, and radically shifts the coin issuance schedule.

The BCH blockchain has added almost 8,000 blocks more than the Bitcoin blockchain, increasing the production of monetary units by 100,000. BCH has an inflation schedule significantly higher than Bitcoin. Large increases in supply typically have direct downward pressure on price, especially if demand does not rise accordingly.

The development team behind the full node implementation of the Bitcoin Cash protocol, Bitcoin ABC, recently announced plans for a Hard Fork on November 13th. The fork centers around an upgrade designed to stabilize the problematic EDA.

If BCH is successful the developers will have, to some extent, shown that they are capable of maintaining a cryptocurrency with a market cap north of US$10 billion. A stable network also lends itself to further adoption, which is bolstered by a dedicated community.

Trading volume has been led by KRW, BTC, and USD pairs, on Bithumb, HitBTC, and Bitfinex respectively. The daily volume profile on HitBTC is highly suggestive of fake volume or wash trading. With decent trading volume and liquidity, BCH may have a good chance of benefiting from the chaos and disruption induced by SegWit2x.

Technical Analysis

Despite the Bitcoin Cash market being relatively young, the market has begun to trade very technically over the past two months. First, a failed Adam and Eve double bottom. While the structure failed to complete, the measured move targets of failed patterns often remain as targets well beyond their failure point.

A successful Cup and Handle then formed, which has quickly hit it’s measured move target. The recent move higher was also preceded by a break of the 200EMA on the four hour chart.

There is another bullish continuation chart pattern currently building on the four hour chart, a bullish flag with descending volume. The 1.618 fib extension and measured move of the pattern are US$850 and US$888 respectively.

On the daily, using singled Ichimoku Cloud (10/30/60/30) for a faster signal, Cloud metrics are beginning to flip bullish, including a kumo breakout, a strong bullish entry signal. Due to limited data, this is the first Kumo breakout to ever occur on the daily chart.

On the four hour chart, using doubled Ichimoku Cloud (20/60/120/30) for more accurate signals, Cloud metrics have been bullish since November 28th. Kijun is printing support around US$550. There are no active Cloud entry signals on this timeframe using these settings.

Lastly, the BTC/BCH ratio on the four hour timeframe is also showing bullish continuation signals. The Ichimoku Cloud shows all metrics bullish with a developing ascending triangle on descending volume. The 1.618 fib extension and measured move of the pattern are 0.117 and 0.136 respectively. The measured move also roughly corresponds with a 50% retracement of the decline lasting from late August to late October.

Conclusion

Bitcoin Cash has positioned itself as a cheaper alternative to Bitcoin, but has been plagued by an erratic network. The upcoming hard fork to remedy the situation will bolster investor confidence, should it succeed. A stable network may lead to wider adoption, which has been lacking.

Technicals are suggesting strong bullish momentum into the SegWit2x hard fork on November 15th. Targets include US$888 and 0.117BTC. These targets and analysis will likely be heavily disrupted during and immediately after the SegWit2x fork. The EDA removal HF will also likely mean block times will be high due to hash rate which has not sustained itself during times of increased difficulty. How a slow network will affect price remains to be seen.