- BTC may have found a temporary bottom near $6,500 and could witness a bounce to $7,000, as the short-term charts are reporting seller exhaustion. Consolidation may then follow.
- A violation at $6,500 would expose the next psychological support at $6,000.
- Analysts see the current dip as a buying opportunity. The implied rise to back to $10,000 and above, however, will likely take some time.
Bitcoin is looking oversold, having lost half its value in the last five months.
The premier cryptocurrency by market value fell to a six-month low of $6,515 during the Asian trading hours and is currently trading at $6,880 on Bitstamp. That represents a 50.43 percent drop from the year-to-date high of $13,880 hit on June 26.
BTC has registered losses in all of the last four weeks and last week's 18.72 percent drop is the biggest 7-day decline in nearly two months.
The sell-off may now be set for a pause, with the 14-day relative strength index (RSI) flagging oversold conditions, as seen below.
The RSI is currently seen at 20.00, the lowest level since Sept. 26. In other words, the market appears to be at its most oversold for two months.
The below-30 reading on the RSI does not imply a bullish reversal is on the way, but rather describes a short-term price extreme – an overstretched move to the downside, typically followed by a temporary pause or minor bounce.
Seasoned traders would argue that in a strong bearish market, the indicator tends to stay oversold for a long time. While that's true, BTC has already erased 50 percent of the rally from the December 2018 low of $3,122 to the June 2019 high of $13,880.
Further, the intraday charts are backing up the RSI with signs of seller exhaustion.
The classic "long-legged doji" seen on the 4-hour chart represents indecision in the market place. In this case, it's appeared following a sell-off from $10,350 to $6,500, meaning the indecision is predominantly among sellers.
A higher low (or bullish divergence) on the RSI is also pointing to bearish exhaustion.
As a result, a corrective bounce to $7,000 could be in the offing and will likely be followed by short-term consolidation around that level. Acceptance below $6,500 would expose $6,000 – a level that served as strong support in the five months to October 2018.
Bitcoin is flirting with the lower edge of the falling channel seen above, currently at $6,710. The odds of that support holding ground and fueling a price bounce is strong with the daily RSI reporting oversold conditions.
The outlook as per the weekly chart would turn bullish if and when the falling channel ends with a high-volume breakout.
Note that despite the five-month price drop, cryptocurrency experts like Joseph Young are still optimistic about bitcoin's prospects.
Young believes a potential drop to $5,000 or even lower would be a long-term buying opportunity. Popular analyst Josh Rager also tweeted earlier today that he will keep buying regardless of the price.
Meanwhile, George McDonaugh, managing director and co-founder of publicly listed cryptocurrency and blockchain investment firm KR1, told CoinDesk that the cryptocurrency is still in the early stages of the bull market.
"We essentially went from $5,000 dollars to $13,500 in 3 months and now, like the swing of a pendulum, the market wants to know where the bottom is again. In my opinion, we are in the early stages of a bull market, you'll see that the bottom this time around is much higher than $5,000. We will find higher lows all the way back to all-time highs," McDonaugh said.
While the cryptocurrency may chart a higher low, a rise to $10,000 and above will take time, as investor confidence tanks during a bear market and V-shaped recoveries are rare.