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Bitcoin Was Heading for a Big Upsurge, Traders Explain What Changed

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Top crypto traders have started to lean toward a resumption of a bearish trend for Bitcoin price.

With the firm recovery of the Dow Jones Industrial Average and Bitcoin defending the $6,400 support level with strength, crypto traders anticipated the Bitcoin price to rebound to at least the mid-$7,500 area in the short term. In the past 48 hours, however, they have started to lean toward a resumption of a bearish trend for Bitcoin, as the relief rally of the dominant cryptocurrency is seemingly coming to an end.

Much data from the imbalanced buy and sell orders on major exchanges like BitMEX and the decline in the total open interest of Bitcoin futures point toward lacking demand from buyers. Historically, when the Bitcoin price came close to a full-blown capitulation phase as seen in December 2018, it required months of accumulation in a low price range to recover over a lengthy period of time.

The last time Bitcoin dropped to the low-$3,000s region, it took around four months to begin a gradual recovery to the $7,000 to $8,000 area. There are concerns that Bitcoin’s price may have recovered a little too quickly after dropping to $3,700, and as the biggest whales in the crypto market like Joe007 explain, such a short-term, V-shape recovery after a massive correction never occurred in the crypto market in the past.

Top trader explains why Wall Street’s pain is translating to a painful Bitcoin correction

Speaking to Cointelegraph, cryptocurrency trader and technical analyst Eric Thies said that the struggle of Wall Street and institutional investors directly affected the price trend of Bitcoin. As the stock market in the United States took a hit, the open interest across major futures exchanges including CME dropped off substantially. In futures trading, the term “open interest” refers to the total amount of long and short contracts open at a certain time.

According to data from Skew, aggregated open interest for all Bitcoin futures contracts — which include CME, BitMEX, Binance, OKEx and Huobi — fell from more than $4.2 billion to just $2 billion since March 1.

Bitcoin futures aggregated open interest drop

Based on the data, Thies emphasized that the drop in the volume of the futures market led the price of Bitcoin to correct, causing mayhem in the entire cryptocurrency market:

“With last week's plummet, many were initially left scratching their heads. But it makes complete sense from a logical point of view. Looking at the facts of the situation: Bitcoin was looking bullish prior to the breakdown; this is Bitcoin's first 'recession.' [...] Point being, that since futures carry such a heavy weight of the volume in the market, guess what's going to happen when wall street is getting destroyed… Bitcoin also gets shredded. And last week was a very interesting point to be made.”

Some strategists in the U.S. seem to believe that the stock market has not reached its bottom yet. The coronavirus pandemic is still expanding, and the U.S. overtook China as the most infected country in the world. The negative impact the Bitcoin futures market is having on the price trend of BTC is unlikely to subside anytime soon, adding to the selling pressure on the market as a result.

Why Bitcoin was initially en route for a relief rally and is now at risk of another correction

Several renowned traders who have predicted multiple market cycles throughout the history of Bitcoin such as PentarhUdi foresaw the Bitcoin price drop to sub-$6,000 coming when the price of BTC was still hovering above $10,000 in February.

The 200-week moving average mentioned by PentarhUdi on Feb. 10 was $5,800. However, a cascade of liquidations on BitMEX and other exchanges led Bitcoin’s price to free fall to $3,600.

Following the correction, PentarhUdi noted that Bitcoin could recover to up to $8,500, which technically presents a 200-day simple moving average. Then, the trader said that BTC remains vulnerable to a second correction to sub-$3,000s, adding:

“Amid global financial panic, Bitcoin price aggressively attacks Weekly SMA200 and bottom triangle line of previous chart. I see this might not end as well as I thought. As the bearish potential of global markets is huge.” 

From $5,200, Bitcoin saw a decent recovery to around $6,900 but was rejected at a historically strong resistance level. It is now at a borderline negative year-over-year, and in the short term, Thies told Cointelegraph that he now leans toward a bearish outlook:

“One additional interesting point from the event is that it was on 3/13/20 and the low was $3,850. Looking at the charts, the closing price of 3/13/19 was the exact same number. From the pricing standpoint, it is interesting that BTC is now borderline negative for YOY gains since the implementation of futures went live in 2017. I'm watching carefully here since I'm actually leaning unfortunately bearish at the moment.”

The bottom of bitcoin could be lower

Bitcoin has shown less correlation with the U.S. stock market since March 25. While the Dow Jones surged by more than 6% on Thursday, the price of Bitcoin remained relatively stable. Venture capital investor and partner at Placeholder Chris Burniske said that, purely based on technicals, Bitcoin could retest the lows at $3,000.

That validates the historical cycles of Bitcoin, which show that Bitcoin has never recovered in a V-shape pattern from a near 60% correction within a three-week span. For Bitcoin to maintain a bullish trend at a macro level over the medium to long term, a retest of lows and a stable accumulation phase lasting several months is critical.

Echoing the logic of other experienced traders, Burniske said that the plunge of Bitcoin through the 200-week moving average, which typically served as a historical support level for BTC, leaves the dominant cryptocurrency vulnerable to another big pullback:

“Lots of people are asking where BTC bottoms. The short of it is I wouldn’t be surprised to see a retest of our 2018 lows near $3,000. Historically, I’ve relied on the 200 week moving average (yellow line below) as our bear market bottom, but we fell through that at ~$5,500 last Thursday.”

The unprecedented weakness in the altcoin market can be considered another signal of the lacking appetite for high-risk assets and cryptocurrencies in general, as trader DonAlt said: “BTC looks like it could go up, down or sideways. Alts look like they could go down, down or down.”

When Bitcoin is on track for an actual relief rally, altcoins tend to front-run Bitcoin, as seen in December 2019 when Bitcoin started to recover from $6,400 to over $7,500. Bitcoin is now essentially in the same price range; it has rebounded from $6,400 and rose to as high as $6,950, but major altcoins the likes of Ether (ETH) and Bitcoin Cash (BCH) have barely moved against both Bitcoin and the U.S. dollar.

Strategists predict the U.S. stock market continuing to be rattled by the economic consequences of the coronavirus pandemic. New reports show that the virus outbreak in the U.S. may just be starting — and like China in the early days, there is a high probability that the U.S. may take more than two months to recover.

Starbucks CEO Kevin Johnson explained that the recovery of the U.S. from the coronavirus could be delayed by a week or two compared to China, based on the contrast in containment efforts.

With record-high jobless claims and the rapidly expanding coronavirus outbreak, both the U.S. stock market and Bitcoin — primarily due to the declining futures market open interest and volume — remain highly vulnerable to another leg down in the foreseeable future.

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