Central banks start experimenting with digital currencies. Is this a direct threat to bitcoin, or will bitcoin’s popularity continue?
It seems that even more countries and central banks are now catching on to the benefits of developing a central bank digital currency, with the ECB, the Bank of France (Banque de France, and the People’s Bank of China (PBOC) all planning on testing new sovereign digital currencies in 2020.
China’s PBOC is collaborating with with Huawei, telecommunications operators and major commercial banks to develop and roll out a digital currency. Having recently completed the development of their digital currency, they have now progressed to the pilot plan, in order to conduct the necessary financial technology research.
Is there a possibility that these sovereign digital currencies will pose a direct threat to bitcoin as a means of transferring or storing value? The answer to this depends on bitcoin’s perceived use-case, and very-much depends on the circumstances surrounding the country where bitcoin is being utilized.
For example, for citizens of Zimbabwe or Venezuela, where economies and currencies are starting to fail, bitcoin’s non-seizability and store-of-value attributes are going to be valued far higher than in the more developed countries with stable economies and currencies.
However, since the 2008 banking crisis, there is still a lot of mistrust in the global banking system, which is understandable, and is part of the reason why bitcoin was created in the first place, so even if bitcoin is being used within a stable economy, the mere fact that bitcoin is decentralized, easily transferable and non-seizable, is potentially enough for adoption to increase and continue, as long as central banks continue to be mistrusted.
The 4-Hour Chart
Looking at the 4-hour chart, bitcoin (BTC/USD) has been rising on low volume over the course of the past week and has been testing a major resistance range between $7 500 and $7 600 ($9 948 – $10 080 CAD).
Each time that bitcoin takes a crack at the $7 600 ($10 080 CAD) level, it has until now, resulted in a 4-hour rejection wick on each attempt, as the bulls struggle to regain this level as support.
If BTC is able to regain the $7 600 ($10 080 CAD) level as support, then the next major resistance level will be $7 850 ($10 411 CAD), which is a major horizontal resistance level on the 3-day and weekly charts, followed by the $8 000 to $8 200 ($10 610 – $10 875 CAD) resistance range and a retest of the 4-hour 200-bar simple moving average (MA200).
The ADX/DI indicator (trend strength / trend direction) reflects a weak bullish trend, however, where ADX (trend strength) has been declining since Sunday afternoon, and ADX has not been able to regain the 25 level which is needed for the bullish trend to gather a significant level of momentum.
This could potentially mean that bitcoin is close to a short-term trend reversal with more downside to potentially come.
The next major horizontal support range will be between $7 062 and $7 168 ($9 366 and $9 506 CAD). If this support range is lost, bitcoin will most probably continue the downtrend for a retest of the $6 900 – $7 000 ($9 151 – $9 283 CAD) support range, and with scope for a potential wick down to the $6 700 – $6 800 ($8 885 – $9 018 CAD) lower time frame support range.
Daily and Weekly Charts
The weekly and daily charts reflect the fact that bitcoin is still in the tail-end of an extended corrective phase since the $13 880 ($18 408 CAD) top, where bitcoin seems to be printing a larger WXY elliot wave correction, which is a complex double-three wave pattern consisting of 3 waves.
If the daily $6 900 ($9 151 CAD) horizontal support level does not hold, then the next major support range will be between $6 165 and $6 752 ($8 176 and $8 954 CAD), where bitcoin could potentially expect a short-term bounce for a retest of the 50-day simple moving average (MA50) above $8 000 ($10 610 CAD), before potentially moving lower into the long-term accumulation support range between $5 842 and $4 911 ($7 747 and $6 513 CAD).
This would also coincide with a 1.214 – 1.382 Fibonacci extension of the correction from $10 350 to $6 515 ($13 726 to $8 640 CAD), and could potentially see bitcoin retesting the $5 000 ($6 631 CAD) support level, should there be a full 1.382 Fibonacci extension ($5 050 / $6 697 CAD).
A 1.382 Fibonacci extension would also coincide with a retest of the 200-week simple moving (MA200) on the weekly chart, and a dip to these levels would result in a 0.786 Fibonacci retracement ($5 424 / $7 193 CAD) of the entire rise from the $3 122 ($4 140 CAD) lows to $13 880 ($18 408 CAD) on the weekly chart.
On the daily chart, ADX/DI reflects a strong bearish trend, which has been weakening on a daily basis over the course of the past week when bitcoin surged on declining volume from the recent $7 087 ($9 399 CAD) swing low for a retest of the $7 500 – $7 600 ($9 948 – $10 080 CAD) resistance range, which bitcoin has been unable, as of yet, to regain as support.
ADX/DI on the weekly chart reflects a weak bearish trend well-below the 25 level of significance, and with a bearish trend which has been weakening on a weekly basis since the bearish DI cross in November.
This coupled with a bullish cross between the 50-week simple moving average and the 100-week simple moving average (MA100), means bitcoin could potentially be very close to a bullish reversal on the weekly chart, with a potential major low expected over the next few weeks to come.
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.
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