Bitcoin: a necessary pause in the uptrend for sustained growth
After an impressive bull run since mid-February, which has led Bitcoin (BTC) to trade 177% above its annual lows in December 2018, the leading cryptocurrency by market capitalization seems to be running out of momentum. With this, there is less certainty about the possibility of BTC breaching the USD 9,000 barrier without first making a local minimum in areas of greater liquidity for purchases, such as the range between USD 6,600 and USD 7,000.
BTC spot prices have been defying gravity since April when cryptocurrency had a momentum that drove prices from USD 5,000 to USD 9,000. Institutional demand, the U.S.-China trade war, and potential Chinese capital flight may have been the main drivers in the buying pressure that took the price to such extremes.
However, as the cryptocurrency continued to rise, the need for a reversal became evident. Contractions in movements, or better-called corrections, allow prices to oxygenate, looking for support points in historical supports, and accumulate enough strength for the next impulse.
In the graph below, we can see how the price was decreasing its buyer impulse. As the price rose in its race to USD 9,000, green candles began to become smaller and with a higher degree of indecision. The break in the parabola, accompanied by a red candlestick with volume, as shown in the chart, is what traders are looking for to define the end of an expansion and the beginning of a contraction.
Similarly, the Ichimoku Cloud can be interpreted with duplicate configurations for more accurate signals. In the weekly temporality, bitcoin continues to present a bearish outlook, but with a high probability target towards USD 10,000. However, trends of this type are characterized by having the Kijun (Red Line) and Tenkan (Blue Line) close to the price action. When they distance themselves, the probability of an overbuy and a return to their midpoint (kijun) increases considerably. During the period of strong growth, the kijun will function as a baseline for establishing potential regression points.
Currently, the kijun is close to USD 6,600, which should act as a price magnet in the event of a reversal. In the same sense, the historical volume (Horizontal Bars) indicates that any price retracement will find liquidity, and should not exceed the range of USD 6,300 to USD 6,500.
In the daily chart below, the metrics with the Ichimoku Cloud remain 100% bullish: the price is above the cloud, the cloud is bullish, the crossing of the kijun and Tenkan are bullish, and the lag interval is above the price and the cloud.
The break in the trend line of the Relative Strength Index (RSI) (in the graph below) marks an end to an upward movement. As stated in the chart, the RSI has been hitting its highest lows since December 2018; however, on May 31, the trend line was broken, giving way to a correction in the indicator. Although it has fallen back to lows in weeks, it is still in bullish territory (above 50), so the momentum remains optimistic.
Finally, in the 4H temporality, the price action was forcefully marking the supports and resistances. After the expiry of the CME futures on May 31, the market seems to have entered a boom of bearish volatility that leads bitcoin to small lateralization between USD 7,500 and USD 8,250.
On previous occasions, the breach of the USD 8,250 has brought singular volumes to move the price up or down, so it is to be expected that a rupture of the area should be accompanied by the same burden of purchases (being the current case) to witness an organic increase in the asset.
Although the trend is strongly bullish, technical analyses in more extended time frames show signs of overbought conditions and a decreasing bullish momentum. In lower temporalities, the price is marking downward continuation patterns, suggesting an increasingly likely reversal.
Add to this the decline in Bitfinex’s Long vs. Shorts index to 1.0 (peaking at 1.55) and a declining rate in Bitmex’s financing in the last two weeks, sentiments towards the sale could continue to lean around USD 6,600 and USD 7,000. As long as the resistance of USD 8,000- USD 8,250 is not passed, a correction is most likely.