- Bitcoin closed below $9,614 on Tuesday, confirming a bearish reversal on the daily chart. The invalidation of bullish higher-lows pattern is backed by bearish developments on the short-term charts.
- Prices risk falling to $9,097 (May 30 high) in the next 24 hours. A close below that would expose the 100-day moving average line, currently located near $8,100.
- A key indicator is reporting oversold conditions as per the 4-hour chart, so a minor bounce before any drop below $9,097 cannot be ruled out.
- The long-term outlook will remain bullish as long as BTC is holding above the 200-day moving average line.
Bitcoin logged one of the biggest daily price losses of the year on Tuesday, confirming a short-term bullish-to-bearish trend change in the process.
The world’s biggest cryptocurrency by market value closed (UTC) at $9,412.81 on Bitstamp, down 13.25 percent from the daily opening price of $10,848. That’s the second-largest single-day drop of 2019, the first being the 13.67 percent price slide observed on June 27.
With the drop and the resulting UTC close below the July 2 low of $9,614, BTC has invalidated the most basic of all bullish patterns – the series of higher lows on the daily chart.
Media outlets have associated the recent drop with the growing calls for regulation of Facebook’s Libra project and cryptocurrencies in general.
For instance, Facebook’s plan came under attack at a U.S. hearing on Tuesday, with senators calling the company delusional and untrustworthy and questioning the social media giant on how it was planning to prevent money laundering. And, a week ago, President Donald Trump called for banking regulation on bitcoin and Facebook’s Libra.
Now many in the investor community are beginning to worry that Facebook’s Libra project will end up fast-tracking regulations for the crypto market.
The shift in sentiment will likely have a bearing on bitcoin’s price. After all, the crypto market leader rallied from $9,000 to $13,880 in the eight days following Facebook’s unveiling of Libra’s white paper on June 18.
With the odds now stacked in favor of bitcoin’s bears, the cryptocurrency could suffer a deeper drop in the short-run.
As of writing, BTC is changing hands at $9,400 on Bitstamp.
Bitcoin’s invalidation of bullish higher-lows pattern, as represented by Tuesday’s UTC close below $9,615, is backed by a below-50 (bearish) reading on the 14-day relative strength index (RSI) and the downward sloping 5- and 10-day moving averages (MAs).
Further, prices are trading below the key support of the 50-day MA for the first time since early February.
The Chaikin money flow, which takes into account both prices and trading volumes, is barely holding in positive territory, a sign that buying pressure has weakened significantly over the last three weeks.
So, the stage looks set for a drop to $9,097 (May 30 high). A violation there would expose the 100-day MA, currently at $8,122.
A weekly close above $12,000 is needed to invalidate the bearish setup, as discussed yesterday.
The RSI on the 4-hour chart is reporting oversold conditions. As a result, BTC may chart a bearish lower high around $10,000 before falling to $9,097 or below.
While short-duration charts are calling a deeper drop, the long-term outlook will remain bullish as long as prices are held above the 200-day MA, currently lined up at $5,983.
It’s worth noting that prominent analysts believe the ongoing price drop is nothing but a correction in a bull market.
“We’ll retrace inside a temporary downtrend”, @pierre_crypt0 tweeted yesterday.
Alex Kruger, a renowned technical and fundamental analyst, also feels the price is drop is a healthy correction.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Roller Coaster image via CoinDeskArchives; charts by Trading View