The prospect of a deeper drop in bitcoin prices has increased, price-volume analysis indicates.
The world's most valuable cryptocurrency, which had been trading sideways since September 22, fell sharply to a three-week low of $6,220 on Bitfinex yesterday, confirming a range breakdown.
The technical indicators on the daily chart also turned bearish, validating a negative moving average crossover on the long duration charts. Essentially, bears regained control 24 hours ago, opening the doors to the key support of $6,000.
Furthermore, the bearish case is now looking stronger than it did 24 hours ago due to these three factors:
1) BTC breached key support
As seen in the chart above, BTC witnessed a Bollinger band breakdown yesterday and also penetrated the support of the trendline drawn between the June 24 low and Aug. 11 low.
This will likely embolden the bears, as the trendline had repeatedly put the brakes on any sell-off in the first half of September. Further, the trendline is now acting as a stiff resistance to the bulls.
2. Trading volumes hit multi-week highs
Trading volumes on Bitfinex jumped to five-week highs yesterday.
More importantly, total trading volume across all cryptocurrency exchanges rose 36 percent to $5.18 billion – the highest level since Sept. 21 – according to CoinMarketCap.
The fact that trading volumes have grown places greater significance on the bearish move, as a high-volume drop is always considered a strongly negative indicator.
3. Short positions rise, long positions tank
The high-volume drop was accompanied by a 10-percent drop in BTC/USD long positions and a 7.4 percent rise in BTC/USD short positions on Bitfinex.
A break below key support, when accompanied by an unwinding of long positions and a rise in short positions, indicates scope for a deeper sell-off.
So, it seems safe to say that the path of least resistance is to the downside. As of writing, the cryptocurrency is changing hands at $6,312, representing a 0.9 percent gain on a 24-hour basis.
The slight recovery from three-week lows seen overnight is likely associated with the oversold conditions seen on the relative strength index (RSI) on the hourly and 4-hour charts.
- BTC's fall below $6,300 kick-started a bearish move toward $6,000 yesterday.
- The probability of a drop to $6,000 has increased in the last 24 hours as the range breakdown was backed by a pick-up in trading volumes, as well as a rise in shorts and a drop in longs.
- A UTC close above yesterday's high of $6,630 would invalidate the bearish view.
Disclosure: The author holds no cryptocurrency assets at the time of writing.