The ether-US dollar exchange rate (ETH/USD) nosedived on Monday after reports hit the wires that China has officially banned ICOs. Other digital currencies like bitcoin, bitcoin cash and others were dragged lower as well.
It's a notable development for the industry – the world’s number two cryptocurrency is up more than 3,000 percent on the year, and the dramatic rally has triggered not only mainstream attention, but fears that ether, the cryptocurrency that powers the ethereum blockchain, has grown too fast.
Yet, having clocked a fresh three-week low of $270 levels earlier today, ether is now trading at roughly $305.
This means ether is down 12.85% week-over-week, although, on a month-on-month basis the digital currency is holding 16.76% gains. So, on a larger scheme of things, the trend remains bullish.
China's ICO crackdown – Just the beginning?
Still, the China news has been particularly impactful on price as ICO issuers often request payment in ether. (Most ICO tokens are ethereum smart contracts on the ethereum blockchain, which further explains the big drop in the cryptocurrency.)
And there could be more headwinds ahead.
A report from Chinese financial news outlet Yicai indicates that the ban on ICOs could be followed by further action, as it hinted that regulatory authorities intend to tighten the noose further around the cryptocurrency space.
However, the ETH/USD pair has recovered from the three-week low of $270, which suggests investors are not very concerned about the threat of further regulations.
So is the sell-off over for now? Let us see what the price chart has to say…
Bearish exhaustion seen below around trend line support
Sellers appear to have run out of steam (bearish exhaustion) near the key rising trend line support seen on the chart below.
As per CoinMarketCap, the price of ether is up 5% in the last 24 hours. The market capitalization has dropped to $27.90 billion from the previous day’s figure of $32.77 billion. That amounts to a 14.86% drop in a single day.
ETH/USD daily chart
- The area from $286 to $273 includes the rising trend line support, the 50-day moving average support, the 100-day moving average support and the 50% Fibonacci Retracement level of the rally from the July 16 low and September 1 high.
- Today’s long-tailed [long lower body] candle shows bearish exhaustion at the confluence of the key technical levels as noted above
- The price action on the daily chart supports the bullish price-RSI divergence seen on the 1-hour chart below.
ETH/USD 1-hour chart
- The bullish price RSI divergence seen on the chart above shows the sell-off may have ended at the three-week low of $270. (A bullish price RSI divergence is formed when prices form higher highs while the oscillator – in this case an RSI – forms significantly lower highs.)
- The falling trend line on the chart above is likely to act as a resistance around $330 levels.
- A corrective rally to $320-330 levels could be seen.
- Only a positive close today and a bullish follow-through tomorrow would signal the sell-off has ended.
- Selling is seen gathering pace if the prices dip below the three-week low set below $270 levels.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
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