BTC Market Overreaction: Bitcoin Now Drastically Oversold

The market is down again, and the current price trajectory is bringing new lows not seen for over a year. Bitcoin (BTC), normally the most stable asset in the room, has fallen through all of its price levels. Some doom-mongers are savoring a fall to zero and the Bitcoin bulls are worried.

But is this fear justified? Well, maybe not.

Stochastics aren’t often used in crypto technical analysis. In brief, they are used to indicate momentum: a convenient means to show changing trends before they are reflected in the prices. For this reason, stochastic indicators can also be used as a metric for when an asset is overbought or oversold.

Bitcoin’s stochastics indicate the recent price slide has taken the coin just below the 20 price range, suggesting the market has oversold the asset. In technical terms, this means that BTC is trading below its market value. It’s essentially an overreaction to bad news, such as last week’s Bitcoin Cash (BCH)hard fork, which will most likely correct once the dust settles and the market cools.

 

Bitcoin bulls; technical analysis
Bitcoin’s stochastic line (blue) fell below 20 today,  suggesting BTC has been oversold. Via TradingView.

 

BTC Falls Below Support

The stochastics chart appears to confirm analysis that BTC is below its support levels. The sell-off over the past seven days took bitcoin below its floor price of approximately $6,200 per coin; traders lost hold of any  guide rails for their decisions. With the downwards trajectory getting more steep, BTC holders are offloading to salvage some of their investment value.

“Short-term price fluctuations are rarely correlated to the stock market”, said Mati Greenspan, senior market analyst at eToro. “But the macroeconomic trends do tend to line up.

It’s not just technical data that suggest this slide is an overreaction. In perhaps one of the most poorly-timed announcements of the month, Swiss authorities have approved the world’s first Bitcoin exchange-traded product (ETP), created by the UK fintech firm, Amun Crypto. The ETP basket will begin trading next week: 50% will be made up of Bitcoin; the other half will consist of Ether (ETH)XRP, Bitcoin Cash (BCH) and Litecoin (LTC).

Many readers will remember the market’s obsession with Bitcoin exchange-traded funds (ETFs) over the summer. CBOE (of Bitcoin futures fame) submitted an application, which the SEC postponed. Some had already criticized CBOE’s ETF proposal as too exclusive, being designed solely for institutional use.

One of the main advantages of the Amun Crypto ETP, according to the company’s CEO, Hany Rashwan, is that it allows both institutions and retail investors to participate. “The Amun ETP will give institutional investors that are restricted to investing only in securities or do not want to set up custody for digital assets exposure to cryptocurrencies,” Rashwan told the Financial Times “It will also provide access for retail investors that currently have no access to crypto exchanges due to local regulatory impediments.”

Financial instruments, like the Amun Crypto ETP, are a vindication for cryptocurrency holders. It’s a sign of a sophisticated market, one which regulators will allow in their jurisdictions.

Bitcoin bulls aren’t extinct yet

Bitcoin’s recent slide does not bode well for its price outlook. Moving averages are hardly promising, and the recent meltdown has made full recovery an even more distant possibility.

But it’s likely that Bitcoin’s price will hit a soft landing. Investors are used to BTC going for roughly $6,300; today’s plunge is an opportunity to buy at a $1,000 discount. When the market recovers from its momentary panic, developments like the Amun Crypto ETP will fuel further prices rises.

Crypto Briefing has previously suggested that what stopped a bull run a few weeks ago was a lack of momentum. But this could change. Bargain buying and a positive reaction to the ETP news could reverse the losses incurred over the past seven days. With sufficient velocity, the BTC price could rise back above its support levels.

Today the market is in the dumps, but the Bitcoin bulls could return…with a vengeance.


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Author: Paddy Baker
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Bitcoin Severely Oversold, Various Technical Factors Suggest

Williams %R, a technical analysis oscillator that demonstrates oversold or overbought conditions of an asset, is demonstrating highly oversold conditions for Bitcoin.

As Olga Kharif at Bloomberg reported, the Williams Percent Range (WPR) of Bitcoin is hovering at around -83 percent. In WPR, -80 to -100 percent is considered oversold and -0 to -20 percent is oversold.

Analysts state that the oversold condition of Bitcoin demonstrated by WPR could lead to a short-term corrective rally in the future, which may enable Bitcoin to break out of a major resistance level at $6,900.

Since February, Bitcoin has continued to bounce off of the $6,000 mark, achieving a new monthly high the subsequent month only to fall back to $6,000 to stabilize. A same trend has been demonstrated by the market in the past two weeks, suggesting that a corrective rally is due.

Bitcoin is Stabilizing

In August, Bitcoin recorded its most stable month since June of last year, remaining in the $6,000 to $6,500 pocket. Fast forward a month, as of September 15, the price of Bitcoin remains at around $6,550.

For an asset to achieve a proper mid-term rally after a 80 percent correction, a stabilization period and bottoming out process is required. In late August, BTC surged by more than 17 percent within a two-week period.

Since Sept. 9, BTC has been climbing gradually from $6,100, despite an influx of positive developments in the cryptocurrency sector including Citigroup, Morgan Stanley, and Goldman Sachs doubling down on their efforts to institutionalize Bitcoin through the launch of crypto custodian solutions.

In the past three corrective rallies, BTC was left vulnerable to 20 to 40 percent falls due to its tendency to initiate large-scale corrective rallies in a short period of time. In April for instance, BTC increased from mid-$6,000 to $10,000 within a three-week period, which ultimately led BTC to record a 50 percent drop the subsequent month, in May.

Stabilization of Bitcoin is important to ensure that the asset is ready to initiate a proper rally by the end of 2018, a period in which experts expect to see a wave of new capital to hit the cryptocurrency market fueled by the entrance of institutional investors.

Last year, there were no custodian solutions that are required to facilitate the movement of funds from the broader financial market to the cryptocurrency market. As of Sept. 2018, BitGo and Coinbase have already been licensed to operate as trusted custodians in the US market.

Decent Gains of Ethereum

Unlike Bitcoin, ETH, the native cryptocurrency of Ethereum, has increased by more than 40 percent in the past week. Diar, a cryptocurrency-focused research group, disclosedthat initial coin offering (ICO) projects still have more than 50 percent of their ETH reserves.

While the market is undergoing a corrective rally due to its oversold conditions, the sudden increase in the price of ETH could leave the asset vulnerable to a crash in the short-term. On Sept. 15, ETH recorded yet another 10 percent increase in price, surging to $225.

Images from Shutterstock

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Author: Joseph Young
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