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Bitcoin Tanks as Expected

BTC/USD: Price: $8,000 sats | MCAP: $145 Billion | Maximum Gain: -

Why we were intrigued:

Bitcoin has dropped by more than $2,000 this week, catching most investors by surprise.

The top cryptocurrency is currently trading at $8,000 – representing a 20 percent drop on a week-to-date basis. Prices hit a low of $7,734 on Bitstamp yesterday.

With key non-price metrics like the hash rate hitting record highs earlier this month, most experts were calling for a strong move to the higher side.

Technical studies, however, were calling a big sell-off. Notably, on Monday, the MACD histogram – an indicator used to identify trend reversals and gauge trend strength – was reporting strongest bearish bias in nine months.

CoinDesk on Monday reported about the bearish developments on technical charts and warned readers about a drop to $9,000. On that day, BTC was trading around $10,000.

As anticipated, the cryptocurrency fell to $9,000 on Tuesday and extended the drop to $7,734 on Thursday.

The 11.83 percent drop seen on Tuesday was the fourth biggest single-day drop of 2019.

Although technical analysis did point to a downside move, the speed with which the sell-off occurred was unexpected. The bearish move was likely exacerbated by the long squeeze on BitMex.

As of now, BTC is changing hands just below $8,000 on Bitstamp. Technical indicators on intraday and daily charts are oversold conditions.

So, the cryptocurrency may test the former support-turned-resistance of the 200-day moving average (MA), currently at $8,352. Corrective rallies, if any, will likely be short-lived, as longer duration charts have turned bearish.

Read:Bitcoin Approaching Biggest Weekly Price Loss of 2019

Analysis

The Result

Catching a Falling Knife

BTC/USD: Price: $8,000 | MCAP: $145 Billion | Maximum Loss: -

Why we were intrigued:

"Don't try to catch a falling knife" is one of the most commonly used phrase in the financial markets.

A falling knife refers to a sharp drop and is generally used to warn bargain hunters from jumping into an asset during a price drop.

Bitcoin tanked more than $1,000 on Tuesday, confirming a bullish-to-bearish trend change and opening the doors for a test of key support at $7,500.

Sellers, however, struggled to penetrate the 200-day moving average support on Wednesday and during the Asian session on Thursday.

The defense of key MA coupled with the oversold conditions reported by the relative strength index (RSI) indicator suggested that a minor recovery could be in the offing. The scope for a price bounce was detailed in a tweet by @CoinDeskMarkets in the European trading hours on Thursday.

The analyst was betting against the primary trend, which had turned bearish following Thursday's price drop.

The attempt to catch a falling knife proved costly, as the cryptocurrency remained flat lined around $8,000 and fell to lows near $7,700 in the U.S. trading hours on Thursday.

The key takeaway here is that oversold readings on indicators like the RSI gain credence only when there are strong signs of seller exhaustion on the price chart. Also, the RSI can remain oversold for a long time in a strong bearish market.

The Trade

The Result

Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.

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