DASH Cryptocurrency Market Analysis Case Study

This is our Dash market analysis and in it you will be able to see a primer on what Dash is, the technologies it takes advantage of, the exchange marketplace landscape, and how to begin to trade it using technical analysis.

Currency name(s): Dash (DASH), formerly DarkCoin (DRK)
Genesis Block: January 18, 2014
Total Supply: ~19 million
Algorithm: PoW (X11)
Features: Anonymity, Speed

1) What is Dash?

​Dash is a privacy-focused cryptocurrency that was released in early 2014 under the original name of DarkCoin (DRK). Due to the scrutiny under which the crypto space has been under for the past few years, the creators and maintainers of the DRK code decided to rebrand to the less shady sounding “Dash”. The name change was also part of an effort to emphasize the network’s relative speed compared to Bitcoin, as well as its low fees.

Dash’s main value proposition remains anonymity which is accomplished through a modified version of CoinJoin called PrivateSend, although there are currently other more effective options if a greater level of privacy is required (for more on this, take a look at our Monero - XMR article). Unlike the more advanced coins, mixing is not required when sending Dash transactions which can be a nice feature for those who want a choice. Dash is a good option for those looking for a moderate level of anonymity, quick confirmation times, low fees, and relatively stable exchange rates.

2) Technology

​In our Dash market analysis, we have seen that the core of the network is PrivateSend. PrivateSend is comparable to the CoinJoin feature that has been built into some Bitcoin wallets, but rather than being an additional layer on top of the currency’s protocol PrivateSend is written into this network at the protocol level. This technology takes the transactions of multiple people who are sending coins and merges them into one master transaction that is in turn signed by all of the senders before it is broadcast to the network. This renders practically impossible the task of determining which input directly resulted in which output, at least not with any level of certainty. Since there is only one transaction that everyone is jointly signing, there is no way to know for sure which sender transferred money to which recipient by looking at the blockchain. We can only determine that a group of senders each sent X number of coins to each member of a group of recipients.

In the case of CoinJoin, the servers that do the coin mixing are usually also owned and operated by the company whose wallet has implemented the system, leaving the service prone to surveillance (and potentially shutdown). This network, on the other hand, introduces the concept of Masternodes. When nodes in the network meet certain criteria they can become Masternodes, which replace the centralized servers that facilitate the coin mixing operations discussed in the CoinJoin system. This allows for the system to function in a very similar way to CoinJoin, but the mixing takes place on any one of the Dash Masternodes distributed across the planet.

The other technology that is found in this network, or rather hopes to soon, is called InstantSend which seeks to provide instant transaction confirmations for blockchain transactions. Below is an excerpt from the Dash website regarding this feature, an implication of which is that this feature is still under development:

“This paper introduces a new concept called InstantSend (transaction locking and Masternode consensus). This technology will allow for cryptocurrencies such as Dash to compete with nearly instantaneous transaction systems such as credit cards for point-of-sale situations while not relying on a centralized authority. If successful, such an idea could revolutionize cryptocurrency, by shortening the delay in confirmation of transactions from as long as an hour (with Bitcoin) to as little as a few seconds.”

You can download the paper here.

We applaud the developers behind this network for their continual work on making cryptocurrency more usable and global. The Masternode idea was certainly a novel one and has created a currency that is one of the most stable in the ecosystem. Additionally, monetary privacy and transaction efficiency are noble goals which should keep the value proposition for Dash relevant for the foreseeable future. Having said that, we believe that there are better options for both of these purposes which ultimately limits its upside over the long term, so we would be cautious about holding too much for too long (on either the long or the short side).

3) Dash Markets

While performing our Dash market analysis, we have seen that its token is one of the most liquid and widely traded cryptocurrencies in existence, even in China where larger altcoins have failed to gain as much popularity as Bitcoin has. Like many other altcoins, now Dash’s largest volume comes via Poloniex, although it also gets decent volume on Bittrex and Yobit. There are plenty of places to trade it, including in USD and other fiat currencies, although we think it best to stick with trading against bitcoin if you want to get involved.

4) Trading Dash

In terms of price action, this token acts very well on the medium to long term timeframes. Swing trades off of regional highs and lows can be very profitable for those with patience and objectivity, while shorter-term traders may find the slow action frustrating on a day to day basis. BBA has executed on many highly advantageous setups on both the long and the short side over the past few years so our familiarity with the coin and its markets give us a unique trading edge in this coin.

The aforementioned trade setups for Dash are determined strictly via BullBear Analytics' proprietary technical analysis of the charts. BBA synergizes analysis from multiple timeframes that stretch from the very short term (minutes/hours) to long very (years), which is unique in the world of cryptocurrencies. We believe that taking both a broad survey of the trading landscape, as well as a detailed look at each perspective individually, is the only way to get a clear picture of what is going on in the market.

Below we will take a quick look at some of the more basic tools BBA uses to evaluate the Dash markets on a day to day basis.

5) Dash Charts and Technical Analysis

​​The primary vehicle via which all technical analysis is performed is known as the chart. A market chart simply tracks price movements over a specified period of time. Below is an example of the most common type of financial chart, the candlestick chart. ​​

Along the X-axis is the timeframe and along the Y-axis is the price of the security. Each “candlestick” represents a summary of the price action within a given period of time (in this case, a day). The very top and bottom of the line extending through each candlestick are the highs and lows for the given time period, and the body of the candlestick is where prices opened and closed during that time period.

There are many more types of charts that we will get into in future educational material such as Renko, Kagi, and point and figure charts, but we have just enough to move forward for now.

5a) Timeframe

There is a theoretically infinite amount of potential timeframes (TF's) we could analyze for any given market, however there are some common ones that a majority of market participants and technicians use for their analysis: the monthly, weekly, daily, 4-hour (240min), 2-hour (120min), 1-hour (240min), 30 minute, and the 15 minute charts. We occasionally use the 1 and 5-minute charts when markets are moving fast, however during normal market conditions they provide too many false signals to make them truly effective.​

To give you a better idea of how much of an impact these timeframes can have on how we view the market we will be showing a series of charts, all of Dash, in which we will describe what is occurring in each one. First, let's look at the short term as this is usually where most new traders and investors begin (hint: do the opposite! We always approach the market from the top-down, meaning we start from the highest TF and work down to the lowest).

As you can clearly see, this market is heading down. If you were unaware of what security this is referencing or in what temporal context this is, you would definitely say this is a bear market (a bear market is defined as a 20+% move down from the highs). In a vacuum, this security looks like it is most certainly heading lower, however, lets back up a step and look at a slightly longer timeframe.

Now it doesn’t look as bad, right?! From this perspective, the market appears to be in a choppy bull market, whereas on the hourly chart we were most certainly in a bear. What a difference a three-hour adjustment to timeframe can make! Let's zoom out, even more, to see what happens when we look at price action in its entirety.

Wait, what the #$*& is going on here?! Well, if we step back to this longer-term view of the market we can see that in fact, it has been in a wide trading range since inception, meaning it has essentially been trendless. It’s pretty amazing that simply changing the length of time we are analyzing can have such a dramatic effect on how we view and potentially trade the market.

5b) Support, Resistance and Trend

One of the most basic, but perhaps most important, tools that technicians utilize are lines of support, resistance, and trend. These are important because they give us reference points to key off of as we trek through these frontier markets.

Let’s start by defining terms which are often misused so that we are all starting from the same place. Support levels (lines) are prices at which there should be a floor underneath the market due to buyers clustering around historically significant levels. Resistance refers to price levels at which there should be a ceiling on the market as sellers tend to cluster around historical levels above the current market price. When we refer to trend, we are simply talking the direction in which the market is heading over a specific timeframe (think back to our discussion on Timeframe). The market can either be moving from the lower left to the upper right on the chart (bullish), from the upper left to the lower right (bearish), or within a range between support and resistance levels.

One more thing to discuss is the idea of a breakout or a breakdown, depending on directionality. A breakout typically refers to a situation in which prices move above a well-known resistance level thus having the effect of accelerating the move higher. Conversely, a breakdown occurs when a well know support level is breached to the downside, thus having the effect of driving prices even lower at a faster rate​

Now that we have that out of the way, let’s get to some examples so that you can see how useful these tools can be!

You can see we have identified the 0.013 level as an area of serious resistance lasting from early June to late July of this year (2016). This is typical when markets are attempting to break out above longer-term resistance, just know that the more times a level is touched the more likely it is to be broken.

Also of note is the fact that shortly after the 0.013 level was taken out and the market moved higher, that resistance level then became support on the next substantial selloff (known as a test of support). Since then, 0.013 has been supporting going forward and will remain so until it is broken to the downside once again.​

Next up we'll take a look at the trend.

It is pretty difficult to misinterpret this chart, which is one of the great things about trend analysis: that it is simple and straightforward. You can see that from the March 2015 high to the December 2015 low the market was in a clear and tradeable downtrend channel, particularly from July on. The implication of the trend channel is the same whether the trend is up or down. A break above the upper trendline means the market is heading higher, while a break below the lower trendline and down she goes.

In this instance, a break of the downtrend channel to the upside around the beginning of 2016 sparked a multi-month bull market which has held trendline support ever since the initial move (meaning it remains intact today). Again, these are very informative, yet easy to implement and interpret, tools that can provide invaluable insights into how you should be positioned in a given market.

5c) Momentum & Volume

The final aspects of Dash trading that we want to explore are the ideas of momentum and volume. Tools that allow us to track and analyze price momentum and trading volumes are often referred to as "indicators", and they come in a variety of forms that range from mathematical moving averages to adjusted measurements of buying vs. selling volumes.

Before we delve deeper into this topic we must warn you that there are literally hundreds of different indicators, all of which examine the market in a slightly different way. For our purposes, which indicator is used will be less important than being able to recognize the trend and identify what are known as "divergence" patterns. This is due to the fact that each indicator is calculated differently, but they all tell essentially the same story.

Below we will be showing some examples of what are some of the most popular and applicable indicators for active traders. We will start with the MACD as it is probably the most popular indicator these days. The MACD consists of two lines and a histogram. You can interpret this indicator in a number of ways. First, when the shorter MA line crosses over the longer MA line it means that a reversal could be occurring. Next, a zero-line crossover can be interpreted just like any other crossover in that when zero is crossed coming from the downside to the upside, this is a bullish confirmation (and vice versa).​

Additionally, when the MACD is trending with the overall market price then the current trend is being confirmed by MACD. On the other hand, a divergence between market price and the indicator signals that a change in pattern is occurring and a reversal in trend is becoming more likely.

Next, we show the Relative Strength Index (RSI) which is interpreted the same way as MACD, except that the RSI adds numerical values to overbought and oversold levels. You can see on the chart below that as the RSI moves closer to the oversold territory (20 and below) at least a minor rally ensues, and when the market is approaching overbought (over 80) a pullback materializes.

Lastly are indications of volume, the main one being a simple running total of exchange volumes known as "volume". There are also volume indicators which account proportionally for buying and selling volume, one of the most popular of which is the A/D line (Accumulation/Distribution line). Like momentum, the main thing to keep an eye out for here is divergences from the prevailing price trend as this is a sign that there may be more or less conviction behind a move than it would appear on the surface. We can see an example of this, as well as examples of the A/D line and volume profile, on the chart below.

Notice that volume is certainly confirming the uptrend that began in the Fall of 2015, and the volume profile has a fairly nice rounded structure to it. Additionally, the A/D line is now confirming the uptrend as well, whereas earlier in the cycle we saw a big negative divergence that was cleaned up during the pullback in June of this year.

Combining trend analysis, support, and resistance levels, momentum and volume indicators, and the knowledge of how to interpret these signals give us a solid foundation from which to create a profitable trading plan, not just for Dash but for any market.

6) Conclusion

​Generally speaking, Dash is a good candidate for technical trading given its historical responses to technically significant events and levels. BBA has an edge in this market due to the length of time we have been involved, as well as the synergistic approach to the market that BBA takes. Additionally, due to the broad ranges that this token trades in, as well as the good liquidity, there are typically outsized risk/reward setups on a medium to long term timeframe that BBA can effectively take advantage of (and hence so can you!).

Subscribe to BullBear Analytics today to see how we apply these principles to everyday activities in the cryptocurrency markets, and to find out what makes our success so sustainable.


Disclaimer: Please always do your own due diligence, and consult your financial advisor. The author owns and trades bitcoins and other financial markets mentioned in this communication. We never provide actual trading recommendations. Trading remains at your own risk. Never invest unless you can afford to lose your entire investment. Please read our full terms of service and disclaimer at the BullBear Analytics Legal.

The crypto space is growing large, and it is difficult to keep information about all the various networks/assets straight. We do our best, but information on this page has not been verified for accuracy, and is provided as-is, for your own consumption. If you find an error that needs correcting, please email us at [email protected].

Disclaimer: Please always do your own due diligence, and consult your financial advisor. Author owns and trades bitcoins and other financial markets mentioned in this communication. We never provide actual trading recommendations. Trading remains at your own risk. Never invest unless you can afford to lose your entire investment. Please read our full terms of service and disclaimer at the BullBear Analytics Legal.