Bitcoin lost ground for five days in a row last week and moved below 50K before starting to recover some of the losses today. At the lowest point, the cryptocurrency lost over 27% since the high print of 64890 on April 14th. There are rumours that the Biden administration is planning a substantial hike (up to 80%) on capital gains tax for cryptocurrencies. At the moment this is an unconfirmed rumour but it could be contributing to the sell-off none the less. Turkey banning the use of “excessively volatile” cryptocurrencies in commerce was another blow that dampened the enthusiasm of bitcoin bulls.  By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

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Recent news that the PBOC has been working on digital Yuan and the BOE starting to explore the possibilities of their own digital currency create potentially serious competition for bitcoin. Suddenly it is not anymore the only game in town and these (and other central bank driven) competitors could be attracting the inflows that otherwise would have been directed to bitcoin.

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Bitcoin’s rally from the March 2020 low has been nothing short of astonishing. The cryptocurrency rallied 1628% in a little over a year. Investors are betting that bitcoin’s next halving event (expected in 2024) together with increasing institutional interest in bitcoin will attract investors to keep on bidding for it. Previous halving events have been associate with boom and bust swings that have ended bitcoin trading at even higher prices than before the event. No market goes up in a direct line though. This week BTCUSD opened below a recent upward-pointing trendline and has dropped about 14% since.

Technically bitcoin was short-term oversold yesterday and tested the 50% retracement level successfully. This has now attracted more bulls to bid for the BTCUSD and cryptos in general. Etherium and Litecoin are both up 6.27% and 5.6% respectively. The bearish breakout from the wedge formation means that technically the steepest uptrend could be over (recent supports are broken) and the bulls have a harder job in convincing the red team (bears) to join their green team.  

An uptrend is over when two things happen, 1) a reactionary low is violated and 2) this is followed by a lower reactionary high. The first box is now ticked and the risk for the other getting ticked also has increased. If the rally that now started leads to a lower swing high we are likely to see either ranging action or more downside volatility. 

This market is not in an easy just-buy-the-dips mode anymore. Instead, BTCUSD is trading below the 50-day SMA for the first time since October last year. In other words, downside volatility has increased and BTCUSD is in a phase where the market is more likely to have sizeable swings. While investors don’t obviously like the increased volatility, periods like this tend to offer good opportunities for short-term traders.

The nearest key price zone is created at 55585 – 57876 where several technical factors coincide. The 23.6% Fibonacci retracement level, both SMAs (20 and 50-day) create this confluence zone that isn’t far away from the rising trendline that used to provide support to the market. The risk is therefore that traders bulls take money off the table in the zone and bears try to take the advantage of this potential weakness. 

Bitcoin is rallying higher today and we expect it to rally to at least to our confluence zone. If a lower high is created below the rising trendline (currently at 59677) the risk of further downside volatility or ranging action is increased. The nearest key support levels are 47004 and 42000.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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