Bitcoin (BTC) is still struggling to find the bottom of a bear market on the anniversary of its record of $ 20,000 ever.
At the time of the press, the largest cryptocurrency in the world by market capitalization was trading at $ 3,230 on Bitstamp – down 83.5% from the all-time high of $ 20,000 reached on December 17, 2017.
BTC is also down 76% year-on-year (from its $ 13,880 opening price on January 1) and is on track to finish its three-year winning streak.
The picture, however, was noticeably different in the fourth quarter of last year. The cryptocurrency picked up a strong offer on November 1, 2017, on speculation that the imminent listing of bitcoin futures products on major US stock exchanges would open the door to institutional money. In those days, BTC sold over $ 6,000.
In particular, the "fear of losing" (FOMO) has established a self-feeding cycle of more investors joining the party, leading to an even greater increase in price. On December 17, BTC was trading at $ 20,000 and was seen to rise to vertigo this year.
Such was the frenzy that Ari Paul, current CIO of Blocktower Capital, purchased 12 month call options with a price of $ 50,000 for $ 1 million. The call options give the holders the right to purchase the underlying cryptocurrency at an agreed price or before a certain date.
Paul was essentially betting that BTC would increase to $ 50,000 by December 28, 2018. The bubble, however, broke out during the first quarter of this year and prices have generally been falling since then. As a result, the call now-worthless option is set to expire next Friday.
A difficult year
The BTC slide from $ 20,000 to $ 3200 could be divided into the following phases:
Sell the fact: BTC closed at $ 13.880 last year – down 44 percent from $ 20,000 on December 17th – probably due to profit taking on long positions started in view of future prices. Most experts called it a "sell the fact" scenario and dismissed it as nothing but a sound correction.
The bubble shrinks: The effects of regulatory slowdowns in China and South Korea weighed heavily on bitcoin prices at the start of the first quarter. Both nations were the main sources of cryptocurrency requests before restrictions. Prices subsequently fell to $ 6,000 on 6 February and closed close to $ 7,000 on 31 March.
Bear respirator: BTC spent a better part of the second quarter and the entire third quarter defending the psychological level of $ 6,000. In particular, the level of key support resisted in the third quarter, despite the decision of the US Securities and Exchange Commission (SEC) to reject BTC-traded funds (ETFs). As a result, experts, including the sympathetic billionaire investor Novogratz, were convinced that BTC had hit the fund by around $ 6,000.
Losses resume: The inability of BTC to produce a substantial price rebound despite the repeated defense of $ 6,000 has proved costly. Prices plummeted below the 21-month average exponential critical support (EMA) of November 14, signaling a sell-off pick-up from the record high of $ 20,000.
What will be?
BTC has hit a minimum of 15 months of $ 3,122 over the weekend and shows little signs of life below the 21-month EMA. The short-term technical charts, however, are signaling the possibility of a slight rebound in the price.
The chart above shows BTC's journey from the all-time highs of a year ago to the recent lows of 15 months near $ 3,100. The outlook for the monthly chart would become bullish if and when the BTC overcame its previous resistance to 21-month EMA support, currently at $ 5.719.
Daily chart and BTC / USD Long on Bitfinex
The daily BTC chart shows a "lateral" violation of the falling wedge resistance, which means that the breakout is not convincing. As a result, a more credible proof of a bullish reversal is needed, possibly in the form of a high volume break above $ 3,633 (maximum of the inverted hammer candle at 3 days).
This could produce a stronger corrective rally at levels above $ 4000.
The long BTC / USD positions on Bitfinex rose to 35,773 BTC today – a level seen last July 23rd. More importantly, the long ones have increased by 33% in the last six days. This could indicate that business hunters pay attention to the extreme oversold conditions reported by the 14-week relative strength index (RSI).
BTC, therefore, could see a corrective rebound before the end of the year.
- A fall at the psychological level of $ 3,000 remains on cards as long as BTC is trading below the crucial resistance at $ 3,633.
- An interruption of more than $ 3,633 would confirm the declining wedge breakout seen in the daily chart and would allow a rally to $ 4,000. A violation would have exposed the next resistance in line to $ 4,410 (November 29th high).
Revelation: The author does not hold cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; graphics of Trading View