Is A New Trend Commencing In Bitcoin?

Is A New Trend Commencing In Bitcoin?

From January 2018, Bitcoin (OTCQX:GBTC) has been in a bearish phase, which has resulted in it declining by 70.19% against the US dollar. However, for the last two weeks, things have been going well for the cryptocurrency, as it has managed to ascend from $5,879 to $7,410. However, I believe that Bitcoin (BTC-USD) shall now have a bearish reversal which shall result in it tumbling till the $5,388 mark. For me to illustrate this in detail, I shall delve into the latest fundamental news affecting the coin (COIN) whilst also sneaking a peek at the technical side.

Fundamental News:

  • The lightning network:
    • Bitcoin’s global adoption agenda received a shove in the right direction after CoinGate announced that it shall be adding 4,000 merchants to its off-chain system. The merchants shall be able to receive payments via the Lightning Network, which shall significantly reduce transactional costs whilst increasing transaction speeds.
    • When transmitting a lightning payment, both parties shall deposit their funds into one Bitcoin address called a channel. Once the channel has been set up, then both parties shall be able to exchange funds continuously. Moreover, the channel system shall help bolster Bitcoin’s security level.
  • Bitcoin and Iran:
    • The Iranian government announced that they shall regard cryptocurrency mining as an industry. This amendment to the law came into effect due to the government facing intense pressure to adopt cryptocurrencies as this shall help mitigate the effect of economic sanctions imposed by the United States. Moreover, the adoption of cryptocurrencies shall facilitate smooth trade between Tehran and its partners. Due to this news, the price of Bitcoin hit the $24,000 mark in Iranian exchanges.
    • The Secretary of Iran’s Supreme Council of Cyberspace said that within three weeks the Central Bank of Iran shall have completed drafting a policy framework for the cryptocurrency industry. Moreover, he also stated that Iran is considering launching its own cryptocurrency.
  • Bitcoin whale dumping:
    • The cryptocurrency market has been bleeding due to Bitcoin whales emptying their coffers. This, in turn, caused the bullish trend seen in the prior few sessions to end abruptly.
    • However, with a market capitalization of less than $300 billion, this dumping shall have a devastating effect not only on Bitcoin but also on the overall cryptocurrency market. Moreover, it is rumoured that Silk Road, which is one of the largest whales shall be selling a major chunk of their Bitcoins so as to repay creditors.

Technical analysis:

Daily chart:

Bitcoin Daily Chart

The cryptocurrency’s daily chart indicates that in the coming days, Bitcoin shall be beaten black and blue. I say this as I expect the bearish trend to linger on due to the formation of a bearish engulfing candle which indicates to investors that the bears have wrestled control of the market from the bulls. Moreover, due to the large bearish candle, we can expect two similar bearish candles to form in the coming days which shall aid in the completion of a three black crows pattern.

On the price target front, I do not expect Bitcoin to extend its bearish fall beyond the 161.8% support level at $5,388. This is due to this level being a tried and tested support zone. Moreover, the 100% support level is at $6,158, whilst the 127.2% support level is at $5,819.

On the indicator facer, the RSI of the cryptocurrency is declining steeply and has just broken below the 60 mark which clearly indicates that a bearish continuation is on the books. Moreover, the ADX lines are ascending steeply, thus depicting the robustness of the bearish strength.

Weekly chart:

Bitcoin Weekly Chart

The cryptocurrency’s weekly chart indicates that Bitcoin is all set for a bearish reversal due to the formation of a dark cloud cover pattern. The prior green candle in the pattern relays to us that the bulls are in complete control. However, we know that is not true as the tide has turned due to the current candle closing inside the first candle’s real body. Moreover, the cryptocurrency is trading below its 20- and 50-day moving averages.

On the support front, Bitcoin has presently taken support from the 23.6% level at $6,906. However, I expect it to tumble till the 78.6% Fibonacci level at $5,474. But if the fall does not culminate at this level, then Bitcoin shall plunge to the 100% support level at $4,917.

The Big Picture:

In conclusion, I am leaning towards the bears being in the driver’s seat for the short and long term. This notion of mine is fuelled by the fact that the technicals and fundamentals support a descent. However, whichever way you decide to trade, do ensure that you utilise trailing stops, as this shall aid in capital preservation which is of prime importance.

Good luck trading.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.