Is the current crypto bear market a good time to buy Bitcoin?

In Trading

As we near the end of the year, it's a good time to take a step back from crypto, reflect, and spend some time with family and friends. A Christmas bear market is not much fun for anyone, but it's an opportunity to reset and regain a healthy perspective on the market.

Is it a good time to buy Bitcoin? Let's take a look at what the charts are indicating.

As we know, Bitcoin broke support and a formed a new yearly low this past week. After plunging through USD6,000, BTC found a temporary support level in the USD4,200 area.

BTC has an established history of doing the exact opposite of the majority’s expectations. Over the course of the last few months, a low of USD4,800, a resistance level from September 2017, was constantly being touted as a reversal point for BTC. With that in mind, it’s been interesting to watch BTC fall through this psychological level with very little support.

Instead, BTC has landed in the USD4,200 range, a level of support dating back to October 2017, before last year's bull run.

Let’s take a look at some charts.

On the 1-day chart for BTC/USD, the white box shows BTC’s break of support at USD6,000. As you can see, there isn’t really a major level of support until the USD3,200 area if current levels don’t hold. Another thing worth mentioning is the bearish volume on the 1-day chart.

As you can see, the recent peak in bear volume is already at similar levels as previous pre-reversal selloffs from earlier this year.

It’s important to remember the selloff in January and February was arguably still during an over-exuberant bull market where many retail traders were holding and fully expecting a bounce back to the upside.

The current situation is a little different. Over the past week, the atmosphere has become much more negative and capitulatory in nature. It’s impossible to make a definitive call, but it would not be a huge surprise to see another leg downward to true capitulation levels.

Zooming out on Bitcoin

Now, let’s take a look at a log-scale BTC/USD weekly chart. Log charts are useful for displaying assets with a large price range.

The yellow circles highlight three RSI lows in Bitcoin’s recent history. As you can see, BTC hasn’t been this oversold since early 2015. While past performance isn’t necessarily an indicator of the future, be careful if you are considering opening major positions right now. It may be prudent to wait for a confirmation, as shown by the image below.

As you can see, over the course of 2015, BTC triple bottomed with a significant RSI divergence, which resulted in a two year bull market.

Finally, here’s a BTC/USD weekly chart showing price action from the past year and a half. As you can see, the current bearish volume doesn’t suggest capitulation has happened yet.

Weekly candles in September 2017, November 2017, December 2017 and so on all registered higher volume selloffs than what we’re currently experiencing.

There are different ways to interpret this. Either capitulation hasn’t happened yet, or this current selloff is just a fakeout. It’s difficult to make a definitive call due to the amount of mixed signals and emotions in the market right now.

XRP remains bullish

XRP’s price movement over the past week is worth mentioning. Percentage-wise, XRP (blue) has consistently outperformed ETH (green) and BTC (orange) recently.

The most notable decoupling can be observed between November 15 and November 19, where XRP moved up about 12%, while BTC and ETH experienced gains of about 4%.

The November 18 breakdown resulted in a 21% downward move for XRP, while BTC and ETH fell 33%. So, what’s the reasoning behind XRP’s bullishness?

Some speculate it’s due to SIX Exchange’s high allocation of XRP in their recently announced ETP, others say it’s institutional accumulation of XRP in preparation for mainstream usage. Whatever the reason, the result is the same: XRP has held its value exceedingly well during the recent bear move.

Finally, ETH recently flipped positions with XRP, and now sits at number 3 in terms of market capitalization. With the recent SEC charges against the founder of EtherDelta, as well as two ICO projects, Paragon and Airfox, coming under scrutiny, there’s an undeniable cloud of negative sentiment at the moment.

The uncertainty isn’t over yet, however, as many people in the crypto community are awaiting (and perhaps expecting) more US-based ICOs to issue refunds to investors as mandated by the SEC.

If this happens, we could see a further collapse to the downside for ETH, as many ICOs still keep the majority of their treasury holdings in ETH.

On the flip side, development and fundamentals of the Ethereum platform are strong, so it's not time to throw in the tower just yet.

For investors looking for good buys to hold for the long term, the current market conditions could be viewed as akin to a Black Friday sale opportunity.

Altcoins like ETH, XRP, XEM, ONT, and more are at mid-2017 levels as crypto continues to gain more legitimacy. Traders should wait for more confirmation of direction, but current levels do present a potential opportunity for traders to scale into long-term holding positions.

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WRITTEN BY

Brian Li

Trader, analyst, Liquid contributor. Editor of Decrypto.net.