BTC forming lower highs and lower lows, but opportunities remain

In Insights

Last week, we looked at how Bitcoin was repeatedly tested the USD3,600 support level before making a 20% move upward to USD4,000.

The drop-off in volume during the resistance break at USD4,200 was followed by a double top in price with even less volume. With this in mind, it would be wise to watch this level very closely because this could be a possible bull trap.

This is exactly how BTC’s price action panned over the past week with key support levels failing to hold at USD4,000, USD3,700, and USD3,600 – highlighted below in green.

What's the play to make in a market like this? There are a few options. You may wish to take a step back and wait it out or you could trade on margin and short the rallies. If margin trading isn't your thing, there's also lending
 

Right now, it’s clear that BTC is forming lower highs and lower lows in a clear downtrend. Two trendlines to pay attention to are highlighted in yellow and red.

The yellow trendline shows a previous resistance turning into a support. Over the past 24 hours, BTC has broken through this yellow trendline with a high-volume sell-off, which suggests there is clear intention and momentum behind this break.

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If BTC is unable to break above and form a support on this yellow trendline, we could very well be in for another leg downward to sub-USD3,000 levels. The break of the red trendline can be useful as a short to mid-term bullish reversal point.

Weekly BTC chart also bearish

Zooming out to a weekly chart, BTC looks even more bearish. Two weeks ago, BTC closed below the 200EMA on the weekly chart, which hasn’t happened in more than three years.

Last’s week price action wicked above the 200EMA, but was unable to close above it. We still have some time left before this week’s close, but things are definitely leaning bearish at the moment.

You may wish to exercise caution before opening any long positions, as the 200EMA turning into a resistance could trigger yet another emotionally driven market sell-off.

But it's not all doom and gloom.

Fundamentally, there are a number of expected positive developments for Bitcoin over the next few months, so this sell-off could be a bear trap. However, the negative price action over the last few weeks was driven by adequate volume, which suggests that there is some concrete momentum behind the move.

With this in mind, bulls may wish to be careful.

ETH and XRP following BTC's lead

For the most part, ETH and XRP have mirrored BTC’s price movement. Earlier this week, ETH once again broke the USD100 support level and fell another 20% to USD80.

Many speculate that ETH’s comparatively poor performance has been due to panic liquidations from ICOs. In reality, the cause of the sell-off doesn’t really matter that much because USD100 was a huge level of psychological support for market participants.

The shift in sentiment towards cryptocurrencies (especially ETH) can be observed across many social channels as a reaction to consistent breaks of support levels that were previously thought to be “unbreakable”. At the moment, ETH is trading at USD89 (a level that hasn’t been seen since May 2017) and XRP sits at USD0.30.

In other news, December has been a very bad month for BCHABC so far. After losing its #4 position in market cap rankings to XLM, BCHABC now sits at #7 behind USDT and BSV.

Ever since the BCH hard fork, BSV has been extremely volatile in nature, with price action culminating in a nearly 40% gain against USD value over the past week. Whatever the cause, BSV may be a good coin to keep an eye on over the next few weeks.

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This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

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