In the past seven days, the bitcoin price (BTC) plunged from $10,100 to $7,736 in a steep overnight pullback that liquidated close to $800 million worth of long contracts on cryptocurrency margin trading platforms.
Holger Zschaepitz, a market analyst at Welt, said the week became worse for bitcoin as the 200-day moving average of BTC dropped for the first time since April of this year.
“A tough week for bitcoin just got worse. The digital currency dropped below 200d MA for 1st time since early April. Bitcoin has erased some 20% of its value this week, on track for its worst performance since November.”
The $2,300 drop in the bitcoin price within a span of seven days left many of the strong lower level supports breached in a short time span, placing the cryptocurrency market at risk of a larger pullback in the near term.
As the bitcoin price dropped below $9,650, a support level that has held up relatively well since July, technical analysts like Josh Rager said that given the large demand to buy in the mid-$6,000 region, BTC could test lower levels that have been extensively tested in the past three months.
A cryptocurrency trader known as “Light” said in late September that the break of key supports could diminish the appetite of investors to enter into the cryptocurrency market in the $8,000 region as it may cause investors to be trapped in a liquidity gap.
While a drop to mid-$6,000 remains possible for BTC based on its intense downward movement in the past seven days, the trader emphasized that the trend of bitcoin tends to seem most downbeat when near the bottom.
The trader said:
“A cacophony of people who were bullish at $10k now bleating that price action looks bad. Price action always looks bad near the bottom. Everyone is afraid. That’s why the opportunity exists.”
Considering the presence of the liquidity gap and the intensity of the short term drop, as the bitcoin price drops below $8,000 and tests lower level supports, it would make the cryptocurrency more appetizing for new investors to enter the market in the medium to long term.
As DonAlt, a technical analyst, said, for the bitcoin to temporarily reverse its trend and see a relief rally, the cryptocurrency should have seen a strong bounce once it touched key support levels.
However, the failure of BTC to reclaim $10,000, which is often described as an important psychological level for the cryptocurrency, has made a strong short term recovery increasing unlikely.
Bitcoin is currently demonstrating oversold conditions in larger time frames as the cryptocurrency market continues to display signs of exhaustion.
Oversold conditions alone are not sufficient to fuel a market recovery as seen on several instances in July wherein the relative strength index (RSI) of BTC showed extreme oversold conditions but the correction extended with minor relief rallies.
The daily volume of bitcoin has increased since early September to around $1.4 billion from $600 million. But, when the magnitude of the sell-off is taken into consideration, it is difficult to suggest that the volume of the asset is at a high point, which could lead to increased sell pressure.
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Last modified: June 14, 2020 9:39 AM UTC