Tuesday, October 22

Key Trading Indicator Suggests Bitcoin Bulls are Steadily Accumulating

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Bitcoin (BTC) closed the week with a selloff, pushing price below the $8k handle and printing a close down 2.5% for the week as a whole. Despite an ominous close to the bottom of the trading range, Bitcoin has rebounded higher this morning alongside other cryptocurrencies, with notable gainers XRP and Link breaking 10% gains for the day. 

With that in mind and with Bitcoin sat at a crossroads, we will take a closer look at the key timeframes to try and determine if Bitcoin is nearing a bottom.  

Daily crypto market performance. Source. Coin360.com

Daily crypto market performance. Source. Coin360.com

Weekly Bitcoin price chart

BTC USD weekly chart. Source: TradingView

BTC USD weekly chart. Source: TradingView

Bitcoin closed the week having failed to make enough of a response to regain the ground lost after breaking down from $9,500 the prior week.  The sentiment in the space has been decisively bearish with a general consensus among analysts suggesting that there is more risk to the downside than to the upside. Despite these bearish sentiments, the 100 week moving average (WMA) and prior weekly support continued to provide enough confluence to stop the bleeding and helped the market respond this morning. 

There is a clearly defined range within which Bitcoin now needs to establish itself. For Bitcoin to return to a convincingly bullish outlook, a break across the descending diagonal resistance, prior weekly support and the 20-WMA will all be necessary; meaning that as it stands, $9,500 would be the main task for the bulls on a macro level. 

Today’s recovery has served to close the gap in the weekly price at the CME Bitcoin futures which is what some traders insist serves as a magnet to price. 

In order to determine whether there is any significance to the bounce from this morning, one must take a deeper dive into the market structure.

BTC USD daily chart. Source: TradingView

BTC USD daily chart. Source: TradingView

Daily Bitcoin price chart

A closer look at the daily chart reveals that Bitcoin did briefly trade lower in the early morning, but quickly recovered to retake the $8k handle and the middle of the trading range.

A close above $8,160 would mean that Monday’s gains will have completely reversed the fall on Sunday and print a bullish engulfing candle. This would imply that the probability of retesting the top of the major range towards $8,500 will have dramatically increased. This stands in stark contrast to bearish price action witnessed on Sunday.

BTC USD daily chart. Source: TradingView

BTC USD daily chart. Source: TradingView

The 4-hour Bitcoin chart demonstrates that the bulls made quick work of the diagonal resistance and the previous resistance in the middle of the range.  At the very least, Bitcoin will need to turn $8,000 into support but again, the best situation is a daily close above $8,160. 

Bullish case

The On Balance Volume (OBV) is an indicator which plots cumulative volume and adds or subtracts the size of the session’s volume depending upon the direction the price has moved in that time. It can be used to identify whether there is accumulation occurring in the market and the line chart shown below the candlestick chart clearly shows upward pressure. This can be interpreted as a divergence with price action which has been lacklustre at best and bearish at worst. 

BTC USD 4-hour chart. Source: TradingView 

BTC USD 4-hour chart. Source: TradingView 

The current price action Bitcoin has been displaying is similar to that of the transition from phase C to phase D of the Wyckoff accumulation chart. This is a broad demonstration of how markets behave at the bottom of the market, where sellers become exhausted after passing their assets across to those wishing to accumulate. 

Wyckoff Events and Phases. Source: StockCharts.com

Wyckoff Events and Phases. Source: StockCharts.com

This schematic coupled with the bullish divergence on the OBV gives some credence to the idea that accumulation may indeed be underway although it won’t be confirmed until after the event, as sellers could still enter the market and overpower the attempted accumulation phase by the bulls. 

A hard test of the top end of the range at $8,450 would be a good early sign that the bulls may take us back up to test $9,500, but there is a huge amount of work to be done and maintaining price closes above $8,000 would be important for this idea to remain a valid possibility. 

Additionally, there appears to be some strong similarities between existing price action and that seen in the $7,000-$8,000 range in the run up to $14,000 which resolved in higher prices following a very similar triple bottom pattern.  Although this looks tremendously similar, it’s worth noting that Bitcoin was in a very different environment at the time in terms of momentum.  

Picture 1

Looking at the orderbook, there continues to be buying interest at fiat onramps around the $7,500 to $7,200 level where bulls are looking to buy the 61.8% retracement in the low $7,200s and the prior weekly support. 

However, it is important to remember that this may be misleading and what is an opportunity to buy at this price to the bulls, may be the liquidity to sell to the bears.

Combined Bitcoin order book. Source: data.bitcoinity.org

Combined Bitcoin order book. Source: data.bitcoinity.org

Bearish scenario

While Bitcoin and other cryptocurrencies have made a good start to the week, it is off the back of a lower low on the weekly close and in the shadow of a major support break at the $10,000 handle.

The move below the 20-WMA is decisively bearish and as mentioned before, it has only ever occurred previously in bear markets for any amount of time.

Furthermore, the 50-day MA is rapidly descending towards the 200-day MA. A cross of the 50-day MA below the 200-day MA is frequently referred to as a death cross and would be the nail in the coffin for some traders who would see this as confirmation that there will be continuation downwards. This is also looking to be converging into the critical space of the major weekly and diagonal resistance zone, meaning that the bulls must break out of the entire cluster of resistance by the end of October to avoid further downside.

BTC USD daily chart. Source: TradingView

BTC USD daily chart. Source: TradingView

The downside potential would threaten pushing Bitcoin deep into the $6,000 range or possibly lower to $5,000 if the full measured move from the descending triangle is met. Last week Cointelegraph discussed this possibility with Tone Vays and it is likely to be the consequence of losing the support at the 61.8% retracement level in the low $7,000s. 

Looking Forward

Overall, the Bitcoin bulls have made a good start to the week by attempting to recover losses from late last week. The bears or those who simply wish to accumulate lower will most likely see a move back across $8,500 as being a selling opportunity; the extent to which will determine what happens next for Bitcoin.

Lower lows back into the $7,000s or failure to complete October with a bullish bang will likely mean that Bitcoin has several months of downside ahead. 

The views and opinions expressed here are solely those of the (@filbfilb) and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.



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