4 Bitcoin Bear Signals To Be Aware Of
While it’s easy to get caught up in bitcoin’s parabolic rally, four bearish factors could impact prices over the coming months.
Bitcoin has experienced a meteoric rise during 2021, doubling from last year’s final price of $29,112 to the current all-time high at $58,332. One of the leading catalysts for this surge has been a notable uptick in institutional interest and investment, including Tesla announcing it had purchased over $1.5 billion worth of bitcoin as part of a new investment policy. The recent emergence of two Bitcoin ETFs also provided a major boost to overall sentiment, since more investors will be able to gain exposure to the leading crypto asset.
While these fundamentals are incredibly promising for bitcoin’s long-term prospects, there are a number of indicators likely weighing on the current uptrend. This does not mean the price will necessarily fall, but they are signs that a cooling-off period is overdue.
- Depleting bitcoin trading volume
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On the weekly BTC/USD Coinbase chart, we can see that trading volume has decreased since an earlier price peak at $42,000 on Jan. 4, even though the price of bitcoin has risen by a further $16,000, give or take. This discrepancy between volume and price is known as a volume divergence and usually signals that fresh capital entering the market is drying up and buying momentum is waning.
Volume divergences sometimes imply that bulls are flipping into holders or waiting for more certainty in the market before buying more bitcoin. In these instances, prices tend to push sideways and volatility drops.
- RSI divergence
Volume isn’t the only indicator showing a strong divergence on bitcoin’s trading chart right now. There’s also a noticeable deviation on the weekly Relative Strength Index (RSI) – a leading momentum indicator that shows when an asset is overbought (likely to crash) and oversold (likely to rise) by calculating the average gains and losses over a 14-day period. The indicator line oscillates from zero to a hundred. As a general rule, an asset is considered overbought whenever it’s above 70 and oversold when it’s under 30.
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Right now, the indicator line reads 73 on the weekly chart, which suggests the asset is overbought and due for a correction. Again, while RSI divergences are typically more reliable than volume divergences for highlighting possible trend reversals, they’re sometimes wrong – particularly in greed-driven markets when investors enter into a buying frenzy.
- $2,740 bitcoin CME gap
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Bitcoin CME gaps are openings that appear on the CME bitcoin futures chart (ticker: BTC1!) whenever the traditional market closes and reopens during periods of high market volatility in the crypto market. This happens because crypto markets are open 24/7 while the U.S. stock market closes over the weekend and ceases trading at 4 p.m. Eastern Time, Monday to Friday.
Prices on the CME bitcoin futures chart are fixed during closing hours, so if the price of bitcoin is $50,000 when the CME closes, that’s where the price will stay until the exchange reopens. However, because bitcoin futures contracts track the price of bitcoin, which is constantly being traded on crypto exchanges, the price suddenly catches up with the crypto market value when the CME reopens. If the price has changed substantially over the weekend, it creates large gaps on the CME chart.
On Dec. 25, 2020, the U.S. stock market closed for Christmas and reopened the following Monday on Dec. 28. During that festive period, the price of bitcoin spiked from $23,795 to $26,353, creating a $2,740 gap on the CME bitcoin futures charts. So far, this gap has not been filled.
Why are these gaps so important? CME gaps, for no proven reason, act like magnets to the price action and have a statistically high tendency of filling – meaning the market price usually returns back to its original point, which in this case would be $23,795. A study conducted in 2019 revealed that CME gaps fill over 95% of the time.
While this suggests prices could drop to the low $20,000s, it’s worth noting there are three other gaps below in bitcoin’s chart that still haven’t been filled, including one at $9,665.
- March is approaching
March has consistently been the worst-performing month for bitcoin, with a mean average loss of 14.725% since 2017 when the market started to gain traction. The second-worst month, on average, is September, with a mean loss of 9.05% over the same timeframe.
While past performance does not guarantee future results, history strongly suggests there’s a seasonality to bitcoin market sentiment. This behavior could be attributed to the upcoming tax year on April 15 in the U.S. and traders selling bitcoin to cover their tax bills.
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Bitcoin Transfers Worth Billions Could Mean Selling Pressure Ahead
A surge in bitcoin balances on major cryptocurrency exchanges preceded Monday’s sell-off, potentially a sign that this year’s doubling in prices tempted some digital-asset investors to take profits.
The price of bitcoin, the largest cryptocurrency, tumbled 7.6% to about $52,800. It was the biggest decline in a month and trimmed the year-to-date gain to about 83%.
Some 40,000 BTC ($2.1 billion worth) have been transferred to exchanges since Friday on major crypto exchanges, pushing up the bitcoin reserves to levels not seen since the end of January, according to data from blockchain analytics firm Glassnode.
Bitcoin’s balance on all exchanges since the end of January. Source: Glassnode
Ki Young Ju, CEO of South Korea-based crypto data firm CryptoQuant, told CoinDesk that the bitcoin inflow mostly went to the U.S-based Gemini, which saw some 34,000 BTC come in before Monday’s market sell-off.
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The blockchain data appear to show a flow of about 28,000 BTC to Gemini around 2 p.m. New York time (19:00 UTC) on Sunday, right around the time the cryptocurrency’s price reached the $58,000 level, according to CryptoQuant.
Monday’s price slide coincided with Treasury Secretary Janet Yellen’s comments at the New York Times’s DealBook DC Policy Project that bitcoin is not widely used as a “transaction mechanism.”
The cryptocurrency represents an “extremely inefficient way” of conducting transactions, Yellen said, and “the amount of energy that’s consumed in processing those transactions is staggering.”
If bitcoin breaks below $50,000, it might then fall to a range of $40,000 to $42,000 before finding a new technical support level on price charts, Singapore-based QCP Capital said Monday on its Telegram broadcast channel.
“We have $54,000 as the first trendline support, a break of which will take us to $50,000, which is the stronger second trend-line support,” QCP Capital wrote. “Forced retail liquidations could take us to test the $40,000-$42,000, which is the hedge fund trading level corresponding to the parabolic trendline.”
“The $40,000 level needs to hold “to preserve the strong bullish momentum,” QCP added.
Bitcoin price crash wipes $10,000 from its value
The price of Bitcoin plunged on Monday, wiping $10,000 (£7,120) from the cryptocurrency’s value in the space of just a few hours as the US Treasury Secretary called the coin “highly speculative” and “inefficient” for transaction.
Speaking at the DealBook D.C. Policy Project conference, Janet Yellen said: “Bitcoin is an extremely inefficient way of conducting transactions and the amount of energy that’s consumed in processing those transactions is staggering.”
Her comments came as the world’s most popular cryptocurrency crashed to under $48,000, cementing the coin’s reputation for erratic swings after reaching record highs over the weekend.
Yesterday, the coin rallied to a new record, reaching $58,354. But on Monday, Bitcoin dramatically dropped to $47,400 before eventually recovering to $54,385.
There was speculation among analysts over whether the dip was a reaction to a Tweet by Elon Musk on Saturday which suggested the coin was overvalued.