By CCN: On May 31, the bitcoin price briefly hit $9,000, achieving a new 2019 high in a powerful recovery from around $8,500.
Within minutes, the bitcoin price crashed from $9,000 to $8,200, falling as low as $8,000 on Bitstamp.
Technical analysts generally consider the sudden rally of the bitcoin price and its abrupt dump to be a case of a fakeout breakout fueled by the liquidation of contracts on BitMEX.
Although a drastic decline in the bitcoin price at a pace in which it fell as soon as it reached $9,000 was largely unexpected by many traders, as cryptocurrency technical analyst Josh Rager said, the trend resembled a classic fakeout pattern.
James Chen, the director of trading at Investopedia and former Gain Capital Head of Research, explained a fakeout as:
Fakeout is a term used in technical analysis to refer to a situation in which a trader enters into a position in anticipation of a future transaction signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction.
Technical indicators pointed toward sustainable momentum for bitcoin in the near-term but as an abrupt sell-off occurred, both short and long contracts on BitMEX were liquidated, further accelerating the rate in which bitcoin and the rest of the cryptocurrency market fell.
In the short-term, one cryptocurrency trader known to the community as “Mayne” emphasized that it is crucial for bitcoin defend its $8,200 support level.
“$8200 level is key for the bulls IMO if it's lost I think we fall much further. As you can see it has been a very important level for a while. A potential short, not sure if we get it would be a lower high at $8700. If we can regain $8700 I think you get net long,” the trader said.
Due to the wild volatility of bitcoin in recent weeks, many traders have suggested that they remain bullish on a macro level but remain unclear about the short-term trend of the dominant cryptocurrency.
Based on technical indicators, traders foresee the bitcoin price demonstrating signs of recovery if it remains above $8,200 with strength, supplemented with relatively high volume.
"I'm not smart enough to know what happens next, but I'm smart enough to know that I don't know. I'm still macro bullish - we are officially in a bull market. On a grand scale I'm favoring longs over shorts from here on out, but not here, not now. I will be patient and wait,” another trader added.
Following the decline of bitcoin, major crypto assets in the likes of Ethereum, XRP, Bitcoin Cash, EOS, Litecoin and Binance Coin recorded an average drop of around eight to nine percent against the U.S. dollar.
According to cryptocurrency researcher Kevin Rooke, the mining difficulty of the Bitcoin blockchain network achieved an all-time high this week, indicating that the profitability of bitcoin mining is on the rise.
In late 2018, miners were reportedly mining bitcoin at a loss as the bitcoin price fell below a breakeven point below $3,550. In December, the price of the asset fell to around $3,150, leaving miners in a difficult position.
“The bitcoin mining operational breakeven for efficient mining operations currently stands around $3550,” global markets analyst Alex Krüger said at the time.
As the mining difficulty continues to increase, the transaction volume of the Bitcoin network rises, and the verifiable spot volume of the asset holds up at its current level of around $1.7 billion, the foundation for a potential recovery could be established.
This article was edited by Samburaj Das.
Last modified (UTC): May 31, 2019 5:16 AM