Hi everyone – welcome to the BlockMinded Technical Update! As I am sure you are aware, the cryptocurrency markets have not performed well over the last few weeks and Bitcoin dominance has been at it’s highest point this year. About a week and a half ago the SEC decided to postpone their decision regarding a Bitcoin ETF. This delay was for the proposed VanEck-SolidX ETF.
Prior to this announcement, the Winklevoss ETF was denied which promoted the recent the sell-off. The price of Bitcoin was trying to establish a base in the lower $7000’s when the VanEck ETF was delayed. This delay opened up an opportunity for short sellers who recognized that the risk of a price spike from an imminent ETF approval had vanished.
The delay between the news and the price decline leads me to believe the sell-off was primarily driven by opportunistic short sellers rather than long term investors selling out of disappointment.
Charting The Recent Movement
Lets take a look at a short to medium term chart. The chart below is a 12 hour chart from cryptowat.ch. The downtrend line begins about two weeks ago in the lower $8000’s. It was not an apparent downtrend until around August 7th or 8th.
Notice how the price bounced off of $6000 around August 9th but the rally faded when it approached the downtrend line. After making a second attempt to break $6000 the buyers took control and the price remained above the downtrend line. Now we have resistance forming around $6,500, which if broken, may enable the price to rise into the $6800-$7000 range.
Looking To The Past
However, over the next few months I am not too optimistic about a large upward price movement. In my opinion, we need to establish a clear base and hold that level for a couple months. Notice that the sell-off over the last eight months is very similar to the 2014 sell-off. This chart is from bitcoincharts.com which has historical data from most exchanges.
Notice how stable the price became in May of 2015 around $225. There was a slight rise in July of 2015, followed by a sharp sell-off as people worried we would be hitting new lows. However, the prices stabilized at $225 for another month giving investors more confidence the bottom had been reached. This led to a rapid surge to $500 over just a couple weeks as a lot of money sitting on the sidelines moved in.
If history were a perfect predictor of the future, I would argue that the recent rally and crash from $6000 to $8500 and back to $6000 is similar to the rally and subsequent decline in March and April of 2015. I would expect the price of Bitcoin to become very stable in the $6000 – $7000 range for the next month or so, or until a long term chart of Bitcoin shows that it has clearly found support and the bear market is over. However, I would not be surprised if the market took another leg down into the $5000’s. Like other long term investors, I will need to be patient and see if the market can stabilize before making any long term trades.
What About Other Cryptocurrencies and Bitcoin Dominance?
The markets for the other cryptocurrencies have looked much grimmer over the last couple weeks. Traders became extremely afraid that Bitcoin would break sharply below $6000, perhaps to $5,000 or even lower. Since the other cryptocurrencies usually have bigger percentage declines when bitcoin falls (as has been the case over the last eight months), they suffered massive losses as traders unloaded them in anticipation of a bitcoin bloodbath.
The Bitcoin dominance statistic I have mentioned a few times rose to 54-55% at its peak a few days ago. Now that it appears bitcoin has found a temporary bottom, a little bit of confidence has returned to the other cryptocurrency markets and many have rebounded 20%+. I would expect Bitcoin dominance to remain elevated compared to earlier this year.