The bitcoin price suffered a serious blow yesterday just as it seemed to be entering a bullish phase. After establishing itself well above the $7,000 level, within half an hour or so it dropped well below that level.
Despite sharp drop bear market for bitcoin still not confirmed
A recent article by Amkar Godbole in CoinDesk notes that the seeming long-term bull market outlook that developed just a few days ago has now been undercut by the sharp drop in price yesterday. However the article claims that technical studies show that a bearish-reversal is still not confirmed.
As the article was published at 11:00 UTC bitcoin was trading on Bitfinex at $6,422 down a full 13 percent from yesterday’s high of $7,404.
Bitcoin has lost all the gains made over the last two weeks within the one day. This has dampened any optimism over recent bullish signs. Nevertheless a long-term reversal to a bearish trend is not yet evident as the price is still well above the key support level of $6,000.
The weekly chart shows that the bears have constantly failed during the last eleven weeks to have a weekly close below the February 6 low of $6,000. This indicates the sell-off from the record high near $20,000 has ended. If bitcoin closes this week below $6,000 the bears will be optimistic.
The daily line chart can give a better idea whether bitcoin is likely to end the week significantly below the support level. The chart focuses only on the UTC close, unlike the candlestick chart that also takes into consideration the daily high and low. The chart shows that BTC has a pennant pattern. A close below the pennant support of $6,340 would be a sign that the long-term bear market would continue. Hence, the probability of BTC ending the week below $6,000 would increase should the price close on the pennant breakdown.
The short duration charts however show the sell-off is over-stretched. The 4-hour relative strength index (RSI) chart shows the RSI level around its lowest level since June 11 showing an extreme oversold position. The same low value is found in the hourly RSI chart. This means that a minor rally certainly cannot be ruled out.
CoinDesk price outlook for bitcoin
Based on his technical analysis Godbole predicts: “BTC’s drop to the low of $6,302 has neutralized the long-term bullish outlook. Prices could drop to $6,000, albeit after a minor corrective rally due to intraday oversold conditions. A weekly close below $6,000 would confirm a bearish reversal. The odds of BTC ending this week below $6,000 would go up if bitcoin closes below the pennant support (line chart) for two consecutive days. In the short-term, $7,429 (Sep. 2 high) is the level to beat for the bulls. Meanwhile, a convincing move above the July high of $8,507 would confirm a long-term bullish reversal.”
Reasons for the slump
One of the reasons that the slump suddenly happened is that Goldman Sachs may be dropping plans to start crypto trading.
Goldman Sachs told CNNMoney that it had not yet made a firm decision about bitcoin or other cryptocurrencies as yet saying: “In response to client interest in various digital products, we are exploring how best to serve them in the space. At this point, we have not reached a conclusion on the scope of our digital asset offering.”
Yesterday bitcoin reached a high of $6,704 with a low way down at $6,279. It is now September 7 UTC. Bitcoin opened at $6,498, At 02:05 into the new day it was at $6,518 the high for the day and trending upwards. While the momentum appears positive there is a long way to go to regain what it lost the last couple of days. Perhaps there will be a short recovery and then a downward trend again. However, many may think that this is a good time to buy and drive the price up.