Bitcoin Market Update

Updated: Nov 23, 2019

Market Overview 03/10/2018


Bitcoin, and the majority of the crypto market, has been in a downtrend since early January and the bear market has certainly taken it's toll on those in the crypto space, as well as their portfolios. The past four months Bitcoin has been moving in a relatively narrow range, never dropping below $5750 or above $8500; removing July the upper limit becomes $7800 and the range continues to tighten in recent months. There's also the descending triangle that nearly everyone is aware of now and it will inevitably resolve soon.

So what's next for Bitcoin? Will it set a new all-time high in 2018 yet, or will bitcoin crash to new lows? Let me be clear that I don't know what will happen - no one does - but I can make use of the data and information available to draw some conclusions. As mentioned earlier, Bitcoin is trading in a tight price band and in the bigger picture a lot of this is simply noise. In fact, I'd advise anyone who isn't day trading, particularly longer term investors, to completely ignore what Bitcoin is doing unless it closes above or below key levels which I'll outline.

Bitcoin Monthly Overview

On the monthly chart, I've called out a number of critical levels.

$7779: resistance which has Bitcoin has not managed to convincingly hold above since May 2018

$6481: key monthly level which Bitcoin has not fully closed below since it was first cleared in October 2017

$5755: recent monthly swing low

$4970 & 5400: monthly swing high from September 2017 and swing low from November 2017

What the first two levels mean is fairly simple. On the upside, the $7800 level must convincingly break in order for this bear market to end, clearing this and establishing a monthly close above it would represent a clear higher high. On the other hand, if Bitcoin closes the month completely below the $6481 level then I have little doubt there further downside and possibly new lows. The upside scenario opens up a path to $10 000, if not a new all-time high. What about the downside scenario?

$5755 will likely be the first significant support if Bitcoin convincingly closes below $6481 on a monthly level. This swing low has not been taken out throughout the duration of this bear market and if it does break there will be new lows for Bitcoin in 2018. If it doesn't hold $5400, November's swing low, is the next point of support. However, note how there's a substantial "gap" on the monthly chart between this swing low and the $4970 swing high from September 2017. Price blew through this region and never really properly backtested it which suggests to me if Bitcoin were to make it's way down to $5400 there's a decent change it won't hold and that price will attempt to fill that void down to $4970. Right below that is a key support zone I've outlined in green which ranges from $4400-$4750. This, in my opinion, is the most likely region for BTC to recover if the $5755 swing low is convincingly broken though of course it could reverse at any of the other key levels I've mentioned. If Bitcoin can't hold there the June 2017 swing high of $3003 and the support zone immediately under it from $2500-$2900 will provide a bounce. I personally believe this is the worst case scenario for BTC.

Before I move on to the weekly, I'd also like to point out the Stochastic RSI on the monthly chart. Bitcoin is laying flat in the oversold zone and hasn't been able to hold a crossover. Notice back in October 2015, the Stochastic RSI crossed over and broke upwards from the oversold region; this was a turning point in the prior bear market and BTC carried out a modest uptrend from then on before going on a parabolic run in late 2017. If the Stochastic RSI crosses up here and breaks out of that oversold zone that's a very good indication that the bottom may be in.

Let's summarize the monthly:

  • Break and close above $7800 and the bear market is over

  • Close entirely below $6481 and more downside is coming

  • If $5755 convincingly breaks, look to $5400 and down with the most probable reversal occuring between $4400-$4970

  • If that fails to hold, Bitcoin could test $2500-$3000 which in my opinion is as low as Bitcoin could possibly go

  • Watch the stochastic RSI for a crossover and break upwards

Bitcoin Weekly Overview

On the weekly chart I've drawn the infamous descending triangle as well as the less mentioned descending wedge. Both chart patterns have defined Bitcoin price action for much of the bear market with BTC never convincingly breaking to the upside or downside of the patterns. Let's look at the key levels on the weekly:

~$10 000: Just above the 0.5 fib retracement of BTC's entire price history and above the swing high from late April 2018

$8780: 50 week MA which Bitcoin has not traded above since late May 2018

$7599 & 7366: the 0.618 fib retracement of BTC's price history and the major upside resistance level

$5700-$6150: key weekly support that has been in place since October 2017; the key swing low and base of the descending triangle also sits within this range at roughly $5810 as does the 0.705 fib level of $5860

$5469: 100 week MA which BTC has held above for a long time

$4000-$4600: The next major weekly support which also holds the key 0.786 fib level of $4257

$2500-$3200: Massive Bitcoin weekly support which holds the 200 week MA (currently $2930) and rests just above the 0.886 fib level at $2268

Let's go back to the descending triangle and wedge. Does a break up/down determine Bitcoin's future? It will certainly help determine a direction and given the amount of eyes on it, significant price action can be expected at it's resolution. But that's only part of the picture.

If Bitcoin breaks to the upside of the formation, which would be around $7000 at this point in time, that's a great start. However, a break and close above both the 0.618 fib and major upside resistance of $7600 is needed to confirm a higher high and a change in market structure and therefore an end to the bear market. However, before we declare a bull run it's critical we regain the 50 week MA (sitting near $8800) and I'm not willing to start declaring a move towards all time highs without taking out $10 000.

The $5700-$6150 support range has been huge for Bitcoin. If this doesn't hold and we break to the downside of the descending triangle, I expect the price to drop significantly. The descending wedge formation and the 100 week MA at ~$5500 may provide some support and it would not surprise me to see it bounce here only to be rejected by $5700 flipping from support to resistance. So if the 50 week MA does not hold there's a "gap" not far below that and it would not surprise me to see a move down to $4970 to fill it or a strong move down to the next support at $4000-$4600. Again, to me this is the most realistic zone of support if BTC breaks to the downside. Now, if things were to get even worse $2500-$3200 is the next support region. I doubt Bitcoin comes this far down and I don't see a scenario where price breaks the 200 week MA which is creeping up over $3000. On the weekly this again represents my worst case scenario.

Briefly looking at the indicators we can see RSI has been in a clear downtrend since late February and Bitcoin has failed to break through this resistance and also was rejected by the 50 RSI level twice. The Stochastic RSI is coiling in the mid-range which isn't often seen in Bitcoin's history and doesn't present many clues; if anything it suggests a smaller move to the upside or downside before making a bigger move in the opposite direction.

Let's summarize the weekly:

  • Price needs to break and close above $7600 to set a higher high and end the bear market, however this only opens up upside targets of the 50 week MA, and if that is cleared, $10 000

  • Breaking and closing above those levels will be a clear signal of the next bull run

  • If the $5700-6150 support range and base of the descending triangle breaks down, a bounce from $5500 appears to be best case scenario

  • Realistically the support zone holding BTC now has been massive and given the narrative around the descending triangle I expect price to quickly test the $5100 swing low, or more likely a move to fill the gap down to $4970

  • $4000-$4600 should provide significant support and is a high likelihood reversal zone if $4970 is breached

  • In the unlikely scenario this fails, the worst outlook for Bitcoin is finding support on the 200 week moving average down near $3000

  • Watch the RSI and Stochastic RSI for early signals of market changing direction

Summing up the Bitcoin market

The descending triangle is a strong narrative in the market right now and price will react strongly to it's conclusion. However, there's no need to stress about the day to day movements of Bitcoin unless you're a day trader. For most, particularly long-term investors, here's what you should do - wait for the market to decide which way it will go. There's no need to guess where it will go and in the bigger picture the price movement you'll miss is miniscule and will save you a lot of stress and potentially money.

So I'll lay out a simple strategy here:

If Bitcoin breaks to the upside and establishes a weekly close above $7400, buy some; if it closes above $7800 on a monthly time frame, buy more. If Bitcoin breaks to the downside and closes below $5700 on a weekly time frame, sell at least some of your Bitcoin if holding a large amount. Before buying back or deploying capital to buy BTC watch the reaction at $4970 and $4000-$4600. A significant bounce from these areas with a large wick to downside is a great buying opportunity and you can consider placing blind bids in this area either with stoplosses or the intention to dollar cost average down. More conservatively, a bounce from this region and maintaining above it for the following weekly/monthly period is a safe play. If this area doesn't hold, look to $3000 where you can either dollar cost average your $4k BTC buys or rebuy stopped out postions.

Ultimately, unless price breaks $7400 to the upside or $5700 to the downside you can largely ignore bitcoin at this point in time unless you're day trading or scalping. However, none of this is financial advice, just my in-depth take on the bitcoin market and how you should consider looking at the situation.


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