Bitcoin bears take the price to 6 month lows: The unravelling of China’s blockchain euphoria, a major low for December, and a potential reversal in the weeks to come.
Bitcoin (BTC/USD) has fallen to it’s lowest price level in over 6 months. The bullish case failed to materialize last week after the hidden bullish divergence signals on the lower time frames became invalidated when bitcoin lost the $7 800 – $8 000 support range, causing a major sell-off to ensue.
It seems that all of the hype and euphoria from China’s blockchain advocacy was completely unravelled, after China announced that they will be reinforcing their crackdown on crypto trading, with the People’s Bank of China (PBOC) warning that they will be increasing “supervision and control to combat virtual currency transactions.”and that “Investors should be careful not to mix blockchain technology with virtual currency”.
Sentiment was dampened further by the Binance-China FUD, where rumours spread like wildfire, claiming that Binance’s Shanghai offices were raided by Chinese authorities. This turned out to fake news and Binance has stated that they will be taking legal action.
It’s worth noting, however, that when China banned ICO’s and crypto exchanges in September 2017, bitcoin went on to record new all-time-highs, surging from under $3k to $20k (less than $3 990 to $26 600 CAD) in less than 3 months. Can we expect the same in the first quarter of 2020?
Bitcoin has extended the downtrend from $10 350 ($13 766 CAD), losing both the 50-week and the 100 week simple moving averages (MA50 and MA100) as support at the same time that the ADX/DI indicator (trend strength / trend direction) experienced a bearish DI cross on the weekly chart, indicating that the weekly trend has turned bearish.
ADX, which measures the strength of trend, is only 17.27 however, and not yet significant until ADX starts reaching levels which are higher than 25.
The circles on the chart are called Fibonacci circles, which is an indicator based on the Fibonacci sequence. Fib circles indicate potential support and resistance levels when connected between 2 extreme points. In this case, the extreme points are between the $3 122 ($4 152 CAD) December 2018 lows and the $13 880 ($18 461 CAD) June 2019 highs.
The 2.618 Fibonacci support circle is fast approaching, and should be reached by the end of next week. This could potentially indicate that a further drop is also approaching once price has penetrated the 2.618 circle, with bitcoin potentially looking towards the 200-week simple moving average (MA200) for support, somewhere between $4 980 and $5 371 (between $6 623 and $7 144 CAD), which is a 1.382 Fibonacci extension of the drop from $12 325 to $7 293 ($16 393 to $9 700 CAD) after a 0.5-0.618 Fibonacci retracement.
This could see bitcoin establish a major low in the $5-6k range ($6 650 – $7 979 CAD) before the end of 2019.
The Fibonacci time zone is a tool consisting of vertical lines, which are placed between two reversal points according to the Fibonacci sequence, extending along the X (time) axis of the chart, in order to forecast potential reversal points based on elapsed time.
Using this tool, if the $3 122 ($4 152 CAD) swing low is connected to the $13 880 ($18 461 CAD) swing high, we can forecast the next major reversal date, being 05 January 2020. This is when we could potentially expect a reversal of the downtrend from $13 880 ($18 461 CAD), with the major low potentially established before the end of December 2019.
RSI (relative strength index) is a momentum indicator which evaluates overbought and oversold conditions in the price of bitcoin.
RSI is heading towards oversold conditions on the weekly chart, although there are still a few weeks to go with a major low expected before the end of 2019, and RSI could potentially enter oversold conditions around the same time that bitcoin reverses from the current downtrend..
Looking at the daily chart, there is a strong bearish trend on the ADX/DI indicator, and although the momentum indicators are reflecting oversold conditions, they can potentially remain oversold for extended periods of time during a major sell-off.
The Funding and Premium Index is an indicator which calculates the final funding rate and the premium index that funding is partly based off of at one of the main derivative exchanges. The blue histograms are the final funding rates, based off interest rates, the premium index, and a time weighted average. The yellow histograms are the premium index.
When the funding rates are positive, as they slightly are right now, it means that there are still margin traders who are longing bitcoin, and so there is still an incentive for the price to be driven down even further, so as to inflict maximum pain in the market, and force bulls to ultimately throw in the towel.
As can be seen on the chart, funding is usually mainly negative before a bullish reversal, and coupled with a strong bearish trend on the ADX/DI indicator, there could be further downside to come.
There could be potential support, however, over the short-term, between $6 216 and $5 925 (between $8 266 and $7 879 CAD), which is between the 1.214 and 1.272 Fibonacci extension levels of the drop from the prior $12 325 ($16 393 CAD) highs to $7 293 ($9 700 CAD) before a 0.5 – 0.618 Fibonacci retracement.
If bitcoin manages a relief rally from those levels, on account of being extremely oversold , there will be major resistance at $7 200 ($9 576 CAD), followed by $7 500 ($9 975 CAD), and then a range of resistance between $7 867 and $8 232 (between $10 463 and $10 948 CAD). These are levels where the price could potentially reverse for the final leg down to the $5-6k range ($6 650 – $7 979 CAD), so as to finally establish a major low within the next few weeks, followed by consolidation before the next reversal leg up, potentially at the start of January 2020.
Zooming in on the 4-hour chart for a short-term perspective, ADX/DI is still reflecting a strong bearish trend, and it seems bitcoin could potentially be in the process of printing 5 waves down as part of a larger C wave of an ABC elliot wave correction, with the 5th wave enroute to being completed.
The price is currently dropping on low volume, indicating potential seller exhaustion over the short-term. There is potential short-term support at $6 383 ($8 489 CAD), which is the 2.618 Fibonacci extension of wave 1 of wave C, followed by a range of support between $6 216 and $5 925 (between $8 266 and $7 879 CAD) over the short-term.
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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