Bitcoin Pulls Back Down Into Futures Gap, But Is It Too Early for $8K?

MARKET ANALYSIS

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Bitcoin (BTC) finally recovered from its sharp drop last week and is currently hovering around $7,300, a move of more than ten percent since the latest low of $6,430.

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Crypto market daily performance. Source: Coin360

However, the price of Bitcoin did touch $7,700 and made a sharp drop yesterday to close a CME futures gap at around $7,230.

So is it time to be bearish, bullish, or neutral? A new check of the graphs is warranted after the latest dropdown.

Bitcoin potentially forming a bottom

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BTC USD 2-day chart. Source: TradingView

The overview shows that Bitcoin is still trending down from the year’s high at $13,900. In addition, a wick inside the green zone and golden pocket Fibonacci ratio (0.618–0.65 area) provided intense buying pressure. This lead to the bounce from last week from $6,430 to $7,690.

The green area can be seen as a substantial area of support, as the price has been bouncing off the $6,000 area numerous times during 2018. Aside from that, the price was stuck inside a narrow range before the huge dropdown to $3,100 occurred.

Constructing a bottom formation inside this green area could make this vital support/resistance area as a launchpad for a new upwards move.

Moreover, some bullish divergences are appearing as well, which typically provides fuel for a probable trend reversal.

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Total market capitalization chart. Source: TradingView

The total market capitalization chart is providing a similar view to the Bitcoin chart: a full retrace towards April / May levels and finding support in this zone. The chart shows a possible bullish divergence as well, leading to a potential trend reversal.

The total market capitalization chart often provides a more unobstructed view of trends and potential support/resistance levels.

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Total market capitalization chart. Source: TradingView.

Data shows that it lost a crucial support level in August 2018, while Bitcoin was still hovering around $6,000 as crucial support. Thus, it is likely that this chart is, once again, providing a clearer perspective of the entire market trend.

Longs ATH is not an argument for downwards bias

Where the total market capitalization chart is showing clear perspectives and trends of the market, the longs on Bitfinex are also showing significant market signals.

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BTC USD Longs Bitfinex chart. Source: TradingView

The chart above is showing the movement of longs in response to changes in Bitcoin price and should be viewed together with the BTC price chart itself.

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BTC USD 2-day chart. Source: TradingView

The red boxes in the BTC USD Longs chart are corresponding with the red boxes in the BTC USD chart, and vice versa, with the green boxes. The data is showing that a long squeeze is not particularly something the market should “expect.”

Every high point in 2018 has presented a tremendous buying opportunity as the highs were all close to the bottom formations in Bitcoin price. In contrast, long lows were usually a top formation in recent years.

Based on recent data, a potential bottom formation is more likely to occur in which the market breaks upwards based on historical data.

CME futures gap is filled

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BTC USD 3-hour chart. Source: TradingView

The futures market on the CME opened this week at a higher level than the close of last week, leading to a gap on the chart. Gaps are a wide-spread phenomenon in the equity markets and are already becoming prevalent in the crypto market as well.

Alongside with this gap, a bearish divergence occurred last night on the smaller timeframes, leading towards a sharp drop to $7,250. Through this, the CME gap was filled on some exchanges (but not all). Therefore, it is possible that the market might have a potential short-term bottom and targeting $8,000 next.

Bullish scenario

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BTC USD bullish scenario. Source: TradingView

A bullish scenario is warranted through holding the $7,200–7,250 as support here. If the market is able to keep $7,200–7,250 as support, a copy of the blue box is likely to occur. The blue box shows a bullish move towards $7,800–7,900, in which the liquidity is taken above the range high.

If the price can keep the $7,200 area and move upwards from there, a similar situation could occur.

For a full bullish move to occur, a breakout of the downtrend would be required along with a break above $8,000 to start a new wave. However, the downwards trendline (blue diagonal in the chart above) is still far away from here.

Bearish scenario

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BTC USD bearish scenario. Source: TradingView

A bearish scenario is constructed in this way: blue area ($7,410–7,500) is flipped into resistance to justify the continuation of the downward trend.

Thus, flipping previous supports into resistances is then likely what’s going to occur in which I’m expecting further downside towards $6,800–6,900. Of course, it depends on what timeframe is charted, but testing the $6,800–6,900 level one more time in the coming months should not come as a surprise.

Overall, I find it more likely to see a “liquidity trap” above the red zone (around $7,800) before we continue to range in this area.

A final test of $6,800–6,900 would then grant a higher low and a possible breakout of the downtrend. This downtrend started at the end of June and has so far remained intact for the past six months.

Meaning that we’ll likely get a few boring weeks of trading inside this range, most likely followed by “Bart” patterns. Don’t get trapped through these movements; look at the bigger picture and, in general, take it slow. Merry Christmas!

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By Michaël van de Poppe

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