After a drop yesterday, bitcoin (BTC) risks another move below $6,000 in the next 24 hours, but it will still likely fare better than other cryptocurrencies.
On Tuesday, bitcoin closed (as per UTC) below the immediate support of $6,108 (June 13 low), pouring cold water over the prospects of a corrective rally above a major technical hurdle at $6,425 (April 1 low).
The failure to capitalize on early signs of short-term bullish reversal has shifted risk in favor of a break below the $6,000 mark (February low).
Even if a drop in prices is seen, bitcoin could still outperform other cryptocurrencies, as a break below $6,000 could trigger risk aversion in the markets, forcing investors to venture out of high-risk alternative cryptocurrencies and into bitcoin.
At press time, BTC is trading at $6,100 on Bitfinex – down 2.25 percent on a 24-hour basis.
BTC was expected to scale April 1 low of 6,425 this week, courtesy of the bullish price-relative strength index (RSI) and bullish price-money flow index (MFI) divergence and the long-legged doji. Instead, it created another lower high (bearish pattern) on the chart as it fell from $6,341 (June 25 high) to $6,020 (today's low).
Further, BTC closed (as per UTC) below the immediate support of $6,108 (June 13 low) yesterday, putting the focus back on the broader bearish outlook, as indicated by the falling channel and downward sloping Bollinger Bands (+2,-2 standard deviation on the 20-day moving average).
So, BTC could drop below $6,000 in the next 24 hours. On the downside, immediate support is lined up at $5,755 (Sunday's doji candle low) and $5,717 (lower Bollinger Band).
Should prices take a positive turn, immediate resistance is located at $6,341 (June 25 high) and $6,560 (20-day MA).
Clearly, BTC chart is biased to the bears, however, other cryptocurrencies will likely post bigger losses, as indicated by a bearish breakdown in ether-bitcoin (ETH/BTC) exchange rate.
The fiat money tends to flow into cryptocurrency markets via major assets like BTC and is then rotated into alternative cryptocurrencies once the bitcoin valuations look overstretched. Further, the rotation of money from bitcoin and into alternative cryptocurrencies is usually a sign the investors are eager to take more risk (a "risk-on" market).
On the contrary, rotation of money out of alternative cryptocurrencies and into major assets like BTC happens when investors turn risk-averse ("risk-off" market).
As most alternative cryptocurrencies are built on the ethereum blockchain, the ETH/BTC serves as a good indicator of risk-on/risk-off sentiment, i.e. rising ETH/BTC means risk-on and falling ETH/BTC means risk-off.
Accordingly, the bearish breakdown seen in the chart below indicates that risk aversion will likely increase in the short-run and the alternative cryptocurrencies will post bigger drops than bitcoin.
ETH/BTC daily chart
The above chart (prices as per Bittrex) shows a bearish Bollinger Band breakdown and a downside break of the trading range.
So, ETH/BTC could be heading lower towards 0.0655BTC (Aug. 15, 2017 low).
- BTC could drop below $6,000 (February low) and could test immediate support of $5,755 and $5,711.
- A daily close below $5,755 (Sunday's Doji candle low) would open the doors to $5,090 (rising wedge breakdown target).
- On the higher side, only a daily close (as per UTC) above $6,425 (April 1 low) would abort the bearish view and allow a corrective rally.
- BTC will likely outperform other cryptocurrencies as indicated by the bearish breakdown on ETH/BTC chart.
Chart image via Shutterstock