Bitcoin on a Knife Edge

On the long-term Bitfinex chart, we see that the current upswing is relatively limited. If we see a more pronounced move to the upside, we might reconsider. At the same time, we don’t see massive changes in the risk-reward at the moment of writing.

The 78.6% retracement, which we previously described as “not that important” has been breached but the 61.8% retracement hasn’t been broken. This means that the move up might be a lot less important than it is cracked up to be. This brings us to the apparent thing visible on the above chart. Compared with previous moves, the current rebound is relatively small. Add to that the fact that some of even the less important retracements haven’t been broken, the volume is small and potentially declining, and the not-so-oversold status of the RSI and we have bearish implications on our hands.

The mere fact that we saw Bitcoin reverse on strong volume is not necessarily an indication that Bitcoin is bound to move higher. Think about that for a second. The previous rebound on strong volume was around January 17, 2018. What happened then? Bitcoin went up for a while but went down relatively quickly and continued the decline. So, the fact that we’re seeing a rebound now is not surprising as it is in line with what we saw during the last rebound.

Why don’t we see the short-term situation as bullish? The main reason is that the move down might occur quite rapidly and it might not be possible to re-enter hypothetical shorts at better prices. Together with the suggestion that the scope of the move up is potentially limited, this might indicate that the situation is bearish from a trading perspective.

The 78.6% level, which is not that important, is now broken but the 61.8% one isn’t and the much more important level 38.2% is very far. This means that, in our opinion, the current trend down remains in place. An earlier warning level around $12,000 based on the recent tops is also quite far away. So, while the current rebound is to the upside and it might look worrying, we don’t think it really is as there are no market indications validating the rebound.

No asset goes down in a straight line, which means that no matter how strong a decline is, you are bound to see corrective upswings along the way. Actually, it might be the case that the current rebound is setting up a situation in which Bitcoin is on  a knife edge and the move down might accelerate shortly. The outlook remains bearish, in our view.