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Technical Analysis

Weekly Bitcoin Technical Analysis, December 2nd, 2019

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December 2, 2019
Chris Colin
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Newly proposed law could enable German banks to support the sale and custody of bitcoin by 2020; and ECB plans for a European central bank digital currency.

 

There seems to be luke-warm sentiment on the crypto-regulatory front. Germany’s news agency, Handelsblatt, has reported that as from 2020, a new money laundering bill is being tabled in the country which would allow banks to offer and hold cryptocurrencies for the first time.

 

This is rather big news, considering that almost no institutions offer virtual assets to their customers, let alone custody of virtual assets, and the new regulations are expected to streamline the cryptocurrency-related operations of German banks.

 

As mentioned by Sven Hildebrandt, the head of the consulting firm DLC:

 

“Germany is well on its way to becoming a crypto-heaven. The German legislator is playing a pioneering role in the regulation of crypto-truths.”

 

Although this bill has been widely met with enthusiasm within the domestic industry, immense caution still remains on the part of the regulators, who still see bitcoin and stablecoins as a form of monetary rat poison with the potential to disrupt the global financial system.

 

Central banks haven’t paid much attention to cryptocurrencies until recently when Facebook announced their Libra stablecoin project, and which almost instantly attracted regulatory scrutiny.

 

Now, central banks are starting to fire back, some with plans to launch their own digital currencies in retaliation, through the development of separate payment ecosystems, used to address the short-comings in cross-border retail payments.

 

Last week, Benoît Cœuré, an outgoing European Central Bank (ECB) executive board member, outlined new plans by the ECB for a European central bank digital currency to rival stablecoins and bitcoin.

 

Speaking at a joint conference held by the ECB and the National Bank of Belgium last week, Cœuré stated that “A central bank digital currency could ensure that citizens remain able to use central bank money even if cash is eventually no longer used,”

 

This move is expected to escalate an E.U regulatory campaign against cryptocurrencies, however, there is still a growing appetite for currencies which are not controlled by central banks and governments, something which a central bank digital currency probably won’t appease any time soon.

 

Bullish Developments on the Weekly Chart

 

Bitcoin (BTC/USD) is in the midst of a few bullish developments on the weekly chart. Firstly, there is a looming bullish cross approaching between the 50-week simple moving average (MA50) and the 100-week simple moving average.

 

As illustrated in the weekly chart below, the last time that bitcoin experienced a bullish cross between weekly MA50 and MA100 was in 2016, right before the parabolic phase of the last bull market. Shortly after that cross, bitcoin went on to surge over 4400% to the $20k ($26 571 CAD) all-time-high.

 

Now it’s highly unlikely that bitcoin will experience a similar growth rate, but a sizeable rally could still potentially be on the cards over the not-too-distant future.

 

The ADX/DI indicator, which determines trend strength and trend direction, reflects a bearish trend, however ADX (trend strength) has been gradually decreasing since the bearish cross between -DI and + DI as this bearish trend weakens on the weekly chart, and ADX is now only 15.61, still not yet significant since ADX is still below the 25 level.

 

There is also a potential bullish divergence signal on the weekly Money Flow Index (MFI), a momentum indicator that takes both price and volume into account. Price printed a lower low while MFI printed a higher low, indicating improving money flow.

 

The divergence signal is not playing out in oversold territory, however, and could potentially become invalidated if that MFI support is lost, so the next weekly close should be telling.

 

 

Daily Chart

 

Looking at the daily chart, bitcoin has either potentially established a major low, or very close to doing so, after already experiencing a 2.618 Fibonacci extension of the initial drop from $10 350 to $8 961 ($13 750 to $11 906 CAD), finding solid support at $6 515 ($8 656 CAD).

 

There is now potential for a 0.618 Fibonacci retracement of the recent relief surge to $7 870 ($10 456 CAD), heading back to the $6 900 to $7 100 ($9 167 to $9 433 CAD) support range, failing which could potentially result in a revisit of the $6 380 to $6 600 ($8 478 to $8 771 CAD) support range for either a flat correction or a new major low.

 

If the major low is already established, bitcoin could then potentially go on to retest the $8 232 to $8 459 ($10 939 to $11 241 CAD) resistance range and the $8 432 ($11 205 CAD) resistance level, which is the 0.5 retracement level of the correction from $10 350 ($13 754 CAD) to the $6 515 ($8 656 CAD) swing low, and aligns with both the 50-day simple moving average (MA50) (which is yet to be retested since losing it as support) and the 1.386 Fibonacci extension level of the recent relief surge to $7 870 ($10 456 CAD).

 

The next major range of resistance will then be between $8 709 to $8 974 ($11 573 to $11 926 CAD). Bitcoin could potentially retest the 100-day simple moving average (MA50) which coincides with the 0.618 Fibonacci retracement level ($8 885 / $11 807 CAD) of the correction from $10 350 ($13 754 CAD) to the $6 515 ($8 656 CAD) swing low. This range also coincides with a 1.618 Fibonacci extension of the recent relief surge to $7 870 ($10 456 CAD).

 

ADX/DI is still bearish, however, with a strong bearish trend, so it’s yet to be seen which range of support is going to hold strong before a potentially bullish trend reversal.

 

4-Hour Chart: Leading Diagonal?

 

The bounce from the $6 515 ($8 656 CAD) recent swing low came in the form of a potential ‘Leading Diagonal‘. According to Elliot Wave Theory, this is the beginning stage of an impulse, which is made up of 5 waves (3 impulsive, 2 corrective) within a contracting rising wedge, and usually followed by a 0.5 / 0.618 Fibonacci retracement in the form of a correction before further upside.

 

Ultimately, if the $6 900 to $7 100 ($9 167 to $9 433 CAD) support range holds after the completed retracement, this could potentially provide confirmation of a leading diagonal, because bitcoin would have experienced a 0.5 / 0.618 Fibonacci retracement, which fits the rules of either a larger wave 2, or a larger wave B if this move is largely corrective.

 

After breaking down from the leading diagonal, there have been 5 waves down to print the lows for wave (a), which is the initial correction. There should now be a potential 0.786 – 0.886 retracement back above $7 714 ($10 252 CAD) for wave (b), on account of a large CME futures gap in that region on the 4-hour chart which could potentially get filled on this next surge.

 

Using wave equality where wave (a) equals wave (c), wave (c) could then potentially target the $6 900 to $7 100 ($9 167 to $9 433 CAD) support range before the next potential leg up.

 

If the $6 900 to $7 100 ($9 167 to $9 433 CAD) support range fails to hold, then there is a strong possibility that the recent rising wedge wasn’t a leading diagonal after all, and could potentially be an Ending Diagonal  of a flat correction off the lows, where BTC could potentially drop to the $6 380 to $6 600 ($8 479 to $8 772 CAD) support range, and potentially $6k ($7 975 CAD).

 

Sell volume is declining and buy volume is gradually increasing on the 4-hour chart, indicating that selling pressure is starting to drop off, over the short-term, potentially for one last bounce above $7 714 ($10 252 CAD).

DISCLAIMER:  The analysis provided in this article is for educational purposes and should not be considered an investment recommendation, All examples and analysis used are for illustration purposes only. All analysis is of the personal opinion of the technical analysis writer.

 


Photo of Author Chris Colin
Chris Colin
Chris is a Crypto Trader / Crony / Degenerate Bitcoin Addict, and Technical Analyst. Chris has a bachelors degree in Economics from Rhodes University. He is a cryptocurrency investor and enthusiast, and has a passion for analyzing the crypto space.
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