Bitcoin (BTC) is on the defensive, having breached crucial support on Monday and could suffer a deeper drop, courtesy of a bearish crossover between key moving averages.
As of writing, BTC is changing hands at $6,420 on Bitfinex, representing a 3 percent drop on a 24-hour basis.
The bullish break above $6,600 witnessed on Friday had set the tone for a move toward the psychological hurdle of $7,000. However, the rally in alternative cryptocurrencies fizzled out over the weekend.
As a result, while BTC managed to hit 17-day highs above $6,800 on Saturday, it fell back below $6,600 yesterday, neutralizing the bullish outlook.
Further, the pullback from the weekend high of $6,841 to today's low of $6,370 validates the bearish view put forward by the negative moving average crossover on the monthly chart. Hence, BTC risks falling to the major support at $6,000 in the next few days.
Over on the daily chart, BTC has found acceptance below the double bottom neckline of $6,600. The bull failure, though encouraging, is not enough to call a bearish reversal.
Moreover, BTC is still trapped in the large pennant, and a UTC close below the lower edge of the pattern would confirm a revival of the sell-off from May highs above $8,500.
That said, the probability of a downside break is high as per the long duration chart.
As seen in the above chart, the 5-month exponential moving average (MA) crossed the 10-month EMA from above at the turn of the last month, confirming a bearish crossover. More importantly, BTC's failure to hold above the MAs over the weekend added credence to the negative MA signal.
- BTC's drop below $6,600 yesterday has neutralized the immediate bullish outlook.
- A downside break of the pennant pattern in the daily chart would open doors for re-test of the June low of $5,755.
- The bearish crossover between the 5-month and 10-month EMAs indicates that BTC is more likely to find acceptance below the pennant support, currently located at $6,265.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.