What’s behind bitcoin’s recent lethargic price action?
Well, for one, investors appear to be waiting on the sidelines as they seek clarity out of China following news that the country’s exchanges will shut down operations by October’s end. Traders, it seems, are in no mood to take up big positions, as evidenced by the drop in the volumes.
But, coinciding with this decline has been lack of substance in the bitcoin-U.S. dollar (BTC/USD) exchange rate.
After a rally from the September 15 low of $2,908, bears made their presence felt but were reluctant to push the digital currency back to $3,000 levels. The weak selling pressure helped BTC regain some poise, although gains are now being capped at the key downward sloping trend line hurdle.
Since Friday, the BTC/USD exchange rate has been hovering in the narrow range of $3,600–$3,800. According to the CoinDesk BPI, the cryptocurrency has traded below $4,000 since September 14.
While China could be blamed for the lack of price action, one must not forget that the cryptocurrency rally was overstretched. Thus, a healthy correction and the current pause may be a blessing in disguise.
As per CoinMarketCap, bitcoin has added 2.2 percent in the last 24 hours, trading at $3,775 at press time. Week-on-week, bitcoin is down 7.92 percent and, for the month, the digital currency has lost 13.4 percent.
The price action analysis suggests the cryptocurrency is chipping away at the key trend line resistance, where a violation would open doors for a revisit to $4,200–$4,300 levels.
Make or break level
The trend line sloping downwards from the September 2 high and September 8 high is offering resistance around $3,830.
– Price breaks above the trend line and prices rise
Such a move would add credence to last week’s bullish doji reversal and higher lows pattern, and may open the doors for $4,300.
A doji candlestick forms when a security’s open and close are virtually equal and signals reversal, which depends on the follow through. In bitcoin’s case, Friday’s doji candle was followed by a positive price action on Saturday. Thus, a bullish doji reversal was confirmed.
– Trendline hurdle holds and prices drop below Friday’s low
Failure at the trend line hurdle followed by a drop below $3,509 would signal a continuation of lower highs and lower lows pattern. This, coupled with the bearish daily relative strength index (RSI) would indicate a potential for a sell-off to $2,980 (September 15 low).