Bitcoin (available on Coinbase) (BTC) has continued to range in a tighter and tighter zone over the past few months with 30, 60, and 120-day volatility pushing yearly lows. The market cap stands at US$112.37 billion, with US$1.42 billion traded in the past 24 hours.
The number of Bitcoin (available on Coinbase) transactions per day has slowly increased since April, and has averaged between 180,000 and 230,000 since June. This key metric has declined significantly for almost all cryptocurrencies throughout the year. In contrast, the Visa payment network, VisaNet, handles an average of 150 million transactions per day and is capable of handling more than 24,000 transactions per second.
Transaction costs have also declined significantly, averaging US$0.59 per transaction, which is almost a two year low. In December, high network volume brought transaction costs to meteoric heights. The transaction cost reduction can be attributed to; the decline in the price of Bitcoin (available on Coinbase), the decline in total transactions per day, Transaction Batching, SegWit, and use of the Lightning Network.
Transaction Batching, or sending one transaction with many outputs instead of sending each transaction individually, has greatly contributed to network efficiency. The ratio of outputs per transactions, or batching ratio, has averaged ~2.7 outputs per transaction over the course of the year, suggesting the practice has become a mainstay. In May, a study found that ~12% of all transactions were batched, accounting for between 30–60% of all transactional value.
Although the batching ratio has trended downward since February, there have been several days where the ratio has spiked far above average. Overall, this indicates a cognizant industry wide effort towards increasing transaction efficiency. Unfortunately, a significant drawback of batching is decreased transaction privacy, which is currently at the forefront of Bitcoin (available on Coinbase) research and development.

BIP141, or the soft fork protocol upgrade activated on August 23rd, 2017 known as SegWit, currently accounts for ~41% of transactions. A SegWit transaction occupies less block space than a traditional transaction, allowing SegWit users to pay less in accumulated fees to achieve the same number of transactions. SegWit also allows for an effective blocksize limit above 2MB. SegWit adoption has continued to increase despite an overall decline in transactions per day throughout the year.
SegWit also enabled the possibility of further second layer network upgrades like the decentralized Lightning Network (LN), which facilitates trusted, bidirectional, off-chain, hub and spoke payment channels. LN also paves the way for the possibility of instant payments, microtransactions, and increased scalability.
Since going live on March 15, 2017, the LN has continued to gain traction. There are now more than 12,000 available channels. The channels work much like a tab at a restaurant, which remains open until the client settles the bill. This format allows for numerous transactions to occur without a network fee, until the channel is closed.
A push for further adoption of LN continues to grow. On September 10th, Lightning Labs released an alpha version of an LN desktop app. Square co-founder and CEO Jack Dorsey was an investor in a Lightning Labs seed round. In May, Dorsey hinted at a Square and Lightning Labs partnership in the future, “we want to go back to that original idea of being able to purchase a coffee [with Bitcoin (available on Coinbase)]. And that’s why we’re working with Lightning Labs. Whatever it takes to get there, we’re going to make sure it happens.”
In August, downloads of Square’s cash.app exceeded Venmo, a mobile payment service owned by PayPal. The cash.app team also recently announced Bitcoin (available on Coinbase) purchases in all 50 states. Square also received approval for a cryptocurrency merchant Gateway patent. Down the road, Square, the cash.app, and potentially Twitter, may integrate LN for certain BTC payment transfers.
Jack Mallers and the Zap team also continue to release updates for their LN wallet. Zap previously worked for WooCommerce payments, an eCommerce plugin for WordPress, which accounts for more than 28% of all online stores.
During 2018, unconfirmed transactions have declined dramatically, averaging below 5,000. Unconfirmed transactions peaked well above 180,000 in December, when SegWit usage and Transaction Batching was far less common. The pending transaction fees associated with these transactions have also dropped, averaging far below 1BTC per block, with the mempool averaging between 2.5-5.0MB. The size of the entire blockchain is currently above 182GB, with the average block size over the past 30 days just above 1MB.
The 30-day Kalichkin network value to transactions ratio (NVT) continues to increase (line, chart below), breaking multi-year highs. Inflection points in NVT can correlate with extreme highs or lows in price. NVT is difficult to compare between coins that use different transactions types, but the ratio can be used to assess a network’s relative utility over time. However, Kalichkin’s NVT does not account for inflation or the use of off-chain LN transactions, which would decrease NVT overall.
Daily active addresses (DAA)  have increased (fill, chart below) since April, but remain down significantly from highs in January. A large uptick in DAA should be seen as a bullish indicator of price, as it suggests an increase in demand. There are also currently over 28 million user wallets.
NVT is also related to Bitcoin (available on Coinbase) days destroyed (BDD), which has continued to decline, suggesting that long term holders with significant amounts of BTC are keeping funds dormant. This metric can be used to analyze early adopters cashing out or moving coins between wallets. For example, if someone has 10BTC that they received 10 days ago and then they spend it, 100 Bitcoin (available on Coinbase) days have been destroyed.
BDD increased slightly in August, potentially related to an old wallet associated with Mt. Gox and Silk Road moving 111,000 BTC, some of which ended up on Bitfinex and Binance.
The months with the highest BDD have historically correlated with highs or lows in price. A spike in BDD in July 2017 was likely related to the Bitcoin (available on Coinbase) Cash hard fork in August. On June 20th, a spike in BDD preceded a drop in Bitcoin (available on Coinbase) price two days later. However, this should not be seen as a 1:1 correlation. A rise in BDD can also represent custodial providers moving coins between wallets, which is typical of major exchanges or OTC brokers.
Turning to other key network metrics, the network hash rate and difficulty continue to post record highs, pushing mining profitability toward record lows. Continued increases in difficulty signify more and more hashrate being added to the network. Difficulty, which adjusts every 2016 blocks, has only had eight decreases above 1% since 2016, all of which correlate with an increase in BTC price shortly thereafter.
The core of mining is solving Proof of Work (PoW), which has lead to ASIC proliferation throughout the network. ASIC farms gravitate towards cheap land and cheap power with several recent stories of new North American farms being built, including; CanADA, Washington, Oregon, New York, Virginia, and Texas.
While many factors influence mining profitability, such as price, block times, difficulty, block reward, and transaction fees, decreasing profitability adds to the risk of further centralizing mining, both through mining pools and geographically. The next Bitcoin (available on Coinbase) block reward halving is slated for May 2020.
BTC exchange traded volume over the past 24 hours has been led by the TETHer (USDT) and the United States Dollar (USD) markets, mostly on Bithumb, Binance, OKEx, and Huobi. In Asia, volume on the Japanese Yen (JPY), Korean Won (KRW), Chinese Yen (CNY) pairs have remained subdued throughout the year.
Avenues to purchase Bitcoin (available on Coinbase), or participate in the price action, continue to increase. On August 31st, the Yahoo! Finance app, with a reported 70 million unique visitors each month, enabled BTC trading. Morgan Stanley also announced this week that they will enable swap trading tied to the CME Bitcoin (available on Coinbase) futures contract. Morgan Stanley manages over US$2 trillion, including funds from more than 3.5 million households in the U.S. alone. Wirex also announced expansion of its services throughout CanADA, while Overstock.com will enable BTC purchases in 2019 through the biometric Bitsy wallet.
Global over the counter (OTC) volume, from LocalBitcoin (available on Coinbase)s.com, had a significant increase over the past week. The biggest increases in notional value globally came from many South American countries, including; Argentina, Chile, Colombia, Peru, and Venezuela. These notional increases are likely fueled by inflation in Argentina and hyperinflation in Venezuela. OTC volume has also increased in Iran, where resumption of U.S. sanctions has encouraged the use of alternative forms of payment.

Technical Analysis
Comparing Q4 BTC price action over the past five years suggests a large move in the making. All but Q4 2014 saw bullish price action and all have had moves above 50%, accounting for the decline throughout January 2015. The leading bias of any upcoming move, as well as a bullish and bearish roadmap, can be determined using the Wyckoff METHod, chart patterns, Pitchforks, exponential moving averages, and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.
Long/short open interest on Bitfinex remains net short, following a sharp bump in bearish positions pushing shorts to near record highs. There is a sTron (available on Binance)g possibility of a short squeeze if price moves higher, where open short positions are forced to buy back into the market to cover their positions. Total open interest is also nearing record highs suggesting that a move in either direction will be exaggerated by margin positions.
The Wyckoff METHod can be used to help determine where price sits within a cyclical pattern. Price structure on the daily chart continues to correlate highly with a typical Wyckoff Accumulation phase. An accumulation phase occurs before a new markup phase. BTC experienced one of these classic accumulation periods throughout 2015. A successful accumulation period would be highly indicative of a prolonged bull trend with another accumulation period around the yearly pivot at US$11,000.
Price also sits within a large Falling Wedge, making successive lower highs and lower lows. This pattern can precede bullish reversal, and typically resolves when 75% full, experiencing a more explosive move when 80% complete. Using Bulkowski’s measure rule, a bullish target of US$11,000 and a bearish target of US$4,200 are projected. There are no active bearish RSI divergences on the daily timeframe as RSI has begun to coil with price.
Alternatively, price may have formed a Descending Triangle, which holds a bearish bias if the pattern forms following a downtrend. As with all triangles, a breakout is expected when the pattern is at least 75% full, experiencing a more explosive move when 80% complete. The triangle will be 80% complete on September 22nd. Using Bulkowski’s measure rule, a bullish target of US$13,000 and a bearish target of US$1,880 are projected. The 1.618 fib extension of the triangle width paints a bullish target of US$16,729 and a bearish target of US$2,079.
Price remains near the median channel in the upward trending pitchfork which started in 2015, with anchor points in January, May, and August of that year. Price will continually attempt to return to the median line (yellow) throughout any given trend. A price rise above the median line would likely have a maximum upside target of ~US$12,000-US$16,000 by end of year. Price will need to maintain a range of US$4,400-US$6,000 in order for the PF to remain valid. The 50/200EMAs are currently bearishly crossed, but may form a bullish Golden Cross in the coming weeks, suggesting further upside.
On the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
On the daily chart, the Cloud metrics are bearish to neutral; price below the Cloud, Cloud is bearish, the TK cross is bearish, and Lagging Span is above price and below Cloud. A long entry based on traditional Cloud strategy would not be warranted until price breaches the Cloud. The long flat Kijun at US$7,865 represents a magnet for price. The Cloud continues to thin, suggesting an opportunity for a bullish Kumo twist and bullish Kumo breakout within the next few months.
On the four hour chart, the cloud metrics are bullish; price is below Cloud, Cloud is bearish, TK is bullish, and Lagging Span is above price and below Cloud. Again, a long entry based on traditional Cloud strategy would not be warranted until price breaches the Cloud. The long flat Kumo at US$6,760 should act as a magnet for price.
Lastly, the opening and expiration dates of the Chicago Mercantile Exchange (CME) BTC futures contracts typically have a significant impact on price. The CME facilitates trading in the largest portion of derivatives contracts in the world. The most recent September 4th contract opened at almost exactly the top of the current price range. A six month contract is set to close on September 28th with a new Q4 contract opening on October 1st, which may provide a substantial increase in volume.

Conclusion
Network fundamentals continue to suggest a vast improvement in scaling capacity and stewardship by the entire industry. Increases in both interest and access to Bitcoin (available on Coinbase) at the retail and institutional levels continue to pave the way for further adoption and understanding. Increases in OTC emerging markets globally, in the setting of both inflation and sanctions, suggest a move away from government-backed fiat currency towards deflationary, peer-to-peer, uncensorable, and permissionless digital assets.
Technicals, including historical volatility and price action, suggest at least a 50% move over the next three months. Overall, indicators lean bearish to neutral over this time period. Key indicators for bullish price action include price above the; multi-month diagonal resistance of both triangle chart patterns, multi-year bullish pitchfork median line, daily 200EMA, and/or daily Cloud. Key indicators for bearish price action are much simpler, closing below the US$5,800-US$6,000 zone would likely result in bearish follow-through.