Welcome to our bi-weekly Technical Analysis Update – where you can learn the basics and apply them to your own trading strategy. We plan on building on our content week after week so make sure to catch each of our instalments.
Over the last seven days we experienced a large shift in market sentiment. A week ago the price of Bitcoin had just crossed the $11,000 mark and bullish sentiments pushed the price to a high of $11,600. For a moment it appeared that the price was going to make a run for $12,000. This would have been higher than the February 20th high, an extremely bullish movement.
However, on March 6, the price of bitcoin began to decrease and eventually dragged the rest of the market with it. The price fell rapidly from $11,600 to $11,000; and again from $11,000 to $10,500 where it tried to consolidate. Bulls were hoping that the price could consolidate a little for a day or two and then make another charge at the $12,000 wall.
On the morning of March 7th (in the United States) the price of Bitcoin fell rapidly from $10,600 to $9,500 invalidating the attempt at another run up.
There were a few items weighing on the market that may have caused this sharp decrease. When there are multiple factors it can be difficult to determine which one had the biggest effect. But there is no doubt that each one eroded market sentiment.
Issues With Binance
Reports started coming in that balances were incorrect, money was missing, and that trades were being placed without user consent. It appears that a third-party site which had access to Binances’ API keys (for trading) was compromised.
When these keys were compromised, the affected user accounts sold all their altcoins for BTC. Afterwards, accounts proceeded to use Bitcoin to buy Viacoin (VIA). The hacker may have had a lot of VIA that they were able to sell off at the inflated price, which at one point, was 100X the price just a few minutes before. This way they could effectively transfer money out of accounts without 2FA or email confirmation. Neither are needed to purchase a coin even if it is 100X the normal price.
Thankfully, Binance has gotten the situation under control. They were able to reverse a lot of trades and restore the missing balances. Fortunately, this issue should not be affecting the market much more moving forward.
Mt. Gox BTC Sold
Shortly after Mt. Gox went bankrupt four years ago, 200,000 BTC were discovered and were supposed to be used to pay back the people who lost their money. The Mt. Gox trustee charged with returning those funds has reportedly sold about 35,000 over the past few months. Everyone who lost Bitcoin on Mt. Gox will receive about $400 per Bitcoin, the price of BTC when the exchange crashed.
The last batch of these 35,000 Bitcoins was sold at a price similar to the $6,000 low in early February, raising enough money to pay back those who were owed. There are 160,000 Bitcoins have not been sold yet.
Nobody knows if or when these will be sold off on the open market. This has added a lot of uncertainty to the market; and may be the biggest reason we everyone is spooked!
SEC Comments on Crypto Exchanges
The SEC wants to increase regulation and this led to an immediate price drop. In the long term, we do not imagine this is a large issue but is certainly another source of short term uncertainty. Most people who have been in the cryptocurrency markets for a while have guessed that it was only a matter of time before something like this happened.
In our opinion, the SEC news scared the market. Then the Binance troubles, as well as the Mt. Gox trustee uncertainty, exasperated the sell-off. The market will need to find a new level to consolidate at before moving forward. The bulls who were so optimistic that bitcoin would break $12,000 and run higher will need to be patient. If bitcoin drops more, it is likely that other cryptocurrencies will continue to fall harder.
The statistic to watch is the bitcoin dominance % as measured by coinmarketcap.com.
This is the percentage of BTC market cap as compared to the total value of all cryptocurrencies. At the time of writing this ratio stands at 41.7%. Whether the correlation between bitcoin and other cryptocurrencies is due to the prevalence of BTC trading pairs is a topic of debate, but the correlation should remain intact for now.
If you want to buy other cryptocurrencies, it is vital to keep your eye on the bitcoin markets and place your trades accordingly.