The cryptocurrency market is a sea of red today, a development skeptics will no doubt quickly use to make the case against bitcoin as a 21st century gold.
In times of economic or political stress, investors prefer to hold safe haven assets, and while many experts believe bitcoin is the new safe haven, today’s dismal performance contradicts such claims. The cryptocurrency dropped 5 percent over the last 24 hours, even while North Korea’s nuclear test and heightened geopolitical tensions pushed up traditional safe haven assets like gold, Japanese Yen.
Overall, bitcoin (BTC) clocked an intraday low of $4,253 earlier today, and was trading around $4,335 levels on news China has banned initial coin offerings, one of the main trends powering this year’s boom.
Still, the price decline comes amid an uptick in trading. CoinMarketCap data shows volumes on Bitfinex, which offers trading in the BTC/USD pair, are up 7.11 percent.
Ethereum (ETH) was the biggest loser among the top 10 cryptocurrencies, down 12.14 percent in the last 24 hours, as it remains the platform of choice for most ICOs. Bitcoin Cash (BCC) had also shed around 3.7 percent and was last seen trading around $554.
So, what should we make of the day’s developments?
As the December 2016 close on the CoinDesk BPI was just under $1,000, the cryptocurrency has still rallied more than 400% this year.
Following a rally of such humongous proportion, a healthy correction is much needed as it serves two purposes:
- It will calm market nerves – Pundits have started comparing bitcoin mania to the 16th century Tulip bubble. A correction here would calm market nerves and help restore confidence in the bitcoin rally.
- Is heightened curiosity for real? The stellar rally in bitcoin led to increased curiosity about bitcoin and crypto space in general. Investors who missed out on the rally would want to board the bitcoin freight train during a technical pullback. Strong dip demand would indicate the heightened curiosity is for real… investors are not just curious but are willing to allocate a part of their portfolio to virtual currencies. Weak dip demand or absence of dip demand would be bad news.
Bigger uptrend is still intact
- The rising trend line from the July 16 low is still intact and could offer support at $4,133 levels.
- The chart above shows a bearish price RSI divergence, which is formed when prices form higher highs while the oscillator (in this case an RSI) forms significantly lower highs.
- The bearish price RSI divergence suggests a short-term top in place around $5,000, although only an end-of-day close below $4,133 today would abort the bullish view and signal potential for more losses towards $3,769 (38.2 percent Fibonacci retracement).
- A potential for a revisit to record highs around $5,000 exists if the prices rise above the daily high of $4,611.6.
- Big gains above $5,000 levels cannot be ruled out if we see a sharp rebound over the next few days from the rising trend line support.