Bitcoin is in a recovery mode after yesterday's seemingly news-driven drop, but the gains could be transient, technical analysis suggests.
Soon before press time, CoinDesk's Bitcoin Price Index (BPI) had bounced back to $10,070 – up 6 percent from the previous day's low of $9,468 – and was last seen at $9,993. However, on a 24-hour basis, the world's largest cryptocurrency by market capitalization is still reporting a 4.25 percent drop, according to CoinMarketCap.
Twenty-four-hours ago, bitcoin (BTC) was trading around $10,500 and clocked a high of $10,702 at 15:00 UTC before falling more than $1,000 to the lowest level since Feb. 26.
Although the sell-off was largely in line with bearish technical set up, negative news flow seems to have added fuel to the fire.
As reported by CoinDesk, it was revealed that the trustee of collapsed Japanese bitcoin exchange Mt Gox, Nobuaki Kobayashi, had dumped $400 million-worth of bitcoin and bitcoin cash – a move that has angered some investors.
Reports of unauthorized sells on cryptocurrency exchange Binance and technical issues at cryptocurrency derivatives exchange BitMEX have also added to bearish pressure around BTC.
Further, the SEC issued a statement that looks to have added to the market's jitters, tweeted by CoinDesk, saying:
3/ SEC: "If a platform offers trading of digital assets that are securities and operates as an 'exchange,' as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration."
— CoinDesk (@coindesk) March 7, 2018
For now, though, it appears the sell-off has ended around the key 38.2 percent Fibonacci retracement of the rally from the Feb. 6 low and Feb. 20 low.
As seen in the chart above (prices as per Bitfinex), BTC left a higher low around $9,577 (38.2 percent Fibonacci retracement) in late February and rose to $11,700 (Mar. 5 high). Once again, the 38.2 percent Fibonacci retracement is proving a tough nut to crack.
The 1-hour chart, below, shows scope for a minor recovery as the relative strength index (RSI) has diverged in favor of the bulls.
The "lower lows" on the price chart and the "higher lows" on the RSI (bullish divergence) indicate that BTC could re-test the descending 50-hour moving average (MA), currently seen at $10,427.
That said, the gains will likely be short-lived, as the 50-hour MA, 100-hour MA and 200-hour MA are all trending lower in favor of the bears. Further, the 100-MA has almost crossed the 500-MA from above (bearish crossover).
Daily chart 2
Bitcoin's close (as per UTC) below the 50-day MA yesterday, and the bearish 5-day MA and 10-day MA crossover, add credence to the bearish set up discussed yesterday and has boosted the odds of a further decline in prices. And, the RSI has dipped below 50.00, also signaling a scope for further losses.
A minor corrective rally to $10,400–$10,500 cannot be ruled out, but gains will likely be short-lived.
BTC looks set to test $8,906 (200-day MA) and could possibly extend the decline to $8,000.
Bullish scenario: A high volume break above $11,000 in the next 72 hours would mean the sell-off from March 5 high of $11,700 has bottomed out around $9,577 (38.2 percent Fibonacci retracement) and could yield a much-awaited bullish break above the inverse head-and-shoulders neckline resistance.
Bouncing tennis ball image via Shutterstock