The price of bitcoin fell to a five-day low today, though the reasons why are perhaps complex to unpack.
At press time, the bitcoin-US dollar (BTC/USD) exchange rate is $5,710, up from a daily low of $5,560. As per CoinMarketCap, week-on-week, BTC is up 3.3 percent, while on a monthly basis, it’s up 55 percent.
However, if you’re looking for a culprit for the dip, industry observers are so far pointing to the creation of bitcoin gold yesterday.
A new cryptocurrency cloned from bitcoin, bitcoin gold is now in the process of “forking” to a new blockchain (with new rules), a process by which the bitcoin blockchain is copied and new digital assets are distributed to existing bitcoin owners.
As put forward by analysts including Blockchain Capital’s Spencer Bogart, a former head of research and Needham and Co., the decline could be a sign investors are moving money to alternatives now that bitcoin gold has initiated the fork. Bogart’s argument is that bitcoin rallied ahead of the launch in anticipation that holders would be credited with bitcoin gold.
However, it’s unclear whether this could be the case. As the new cryptocurrency was not yet distributed, investors may have simply switched out of bitcoin positions on the basis further sell pressure is ahead on the distribution.
But, while it’s too early to tell, the next question is simply, is the pullback in bitcoin over?
Price action analysis suggests a potential for further losses.
Bitcoin gold aside, the retreat from the record highs above $6,100 can also be credited to overbought technical conditions, and in this light, considered to qualify as a healthy correction.
The chart above shows:
- Bearish price-relative strength index (RSI) divergence
- Bearish price-money flow index (MFI) divergence
- Rising trend line (dotted blue line) support is seen around $5,280 levels
The doors are open for a drop to $5,280 levels. Only a daily close below $5,280 would signal the rally from the September low of $2,980 has topped out above $6100 levels.
Bullish scenario – A move above 5-day moving average level of $5,950 could yield a re-test of record highs above $6,100.
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