Bitcoin prediction this week: will the cryptocurrency decline further?
Bitcoin looks to be setting up for a deeper correction to $5,500
Traders and investors usually back an asset class that is in an uptrend. Though cryptocurrencies are one of the best performing asset classes of the year, they have been in a downswing for more than six months.
Compared to that, the US stock markets have been consistently making new highs. The recent announcement of a trade deal between the US and China and the confirmation by the US Federal Reserve that it will not raise rates in 2020 removes the uncertainty for the next year. With reduced risk, institutional investors might stick to the stock markets for some time.
However, if the trade deal falters and the tariff war escalates, or if geopolitical tensions increase, it is likely to drag the stock markets lower. In such a case, investors are likely to diversify into other asset classes. The crypto markets, being uncorrelated to any other asset class, can be an interesting addition to the institutional investor’s portfolio.
With total market capitalisation at under $200bn, (£149.7bn, €179.7bn) any serious flow of institutional money is likely to boost prices. So should the retail traders buy at these low levels or can the cryptocurrencies decline further? Let’s explore the bitcoin price analysis and look at the largest altcoin, Ether.
Bitcoin price this week
Bitcoin has been declining inside a falling wedge pattern since topping out in mid-June of this year. The bulls are currently attempting to stall the decline close to the 61.8 per cent Fibonacci retracement level of the rally from $3,107.15 to 13,839.90.
BTC to USD chart: weekly
If the price bounces off the current levels and breaks out of the wedge, it will signal the resumption of the uptrend because a falling wedge is a bullish pattern. As the pullback from the highs has been deep, the traders can buy some portion of their desired allocation on a breakout of the wedge and buy the rest on a successful retest of the breakout level.
We do not suggest buying when the price is falling because the 20-week EMA is sloping down and the RSI is in the negative zone. This suggests that the bears are in command. If the bears sink the price below the wedge, it is likely to result in panic selling that can drag the price to $5,500, which is 78.6 per cent Fibonacci retracement level. Usually, a breakdown below this Fibonacci level results in a complete 100 per cent retracement of the entire rally.
A fall to $3,107.15 will be a huge negative; hence it is better to wait for the price to turnaround and show strength before attempting to buy. Let’s study the daily charts to see if we spot any signs of a turnaround.
BTC to USD chart: daily
The daily chart shows the bulls struggling to defend the immediate support at $7,064.10. This is a negative sign as it shows that the bulls are still not aggressively buying at these levels because they are not confident that a bottom is in place.
A failure to bounce off the current levels is likely to drag the price to the recent lows at $6,502.15. This is an important level to watch out for because we anticipate the bulls to defend it aggressively. A break below this level will dampen sentiment and delay the start of the next up move. The downsloping 20-day EMA and the RSI in the negative territory indicate that bears have the upper hand.
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Bitcoin has not closed above the 20-day EMA since November 11 of this year. If the bulls can carry the price above the 20-day EMA, it will be a sign that buyers are back in action. Short-term traders can stay on the long side after the price sustains above the 20-day EMA. Until then, it is better to remain on the sidelines.
Ethereum prediction this week
Ether topped out in mid-June of this year and since then has been making a series of lower highs and lower lows (shown via arrows on the chart). This is a negative sign as it shows that the sentiment is to sell the positions on minor rallies rather than buy on dips. The failure of the bulls to defend the previous support level shows a lack of conviction among the buyers.
ETH to USD chart: weekly
The bounce off the recent lows of $131.39, has been shallow, which shows that the buyers are not attempting to defend the level aggressively. We now expect the bears to attempt to break below the support and sink the price to $120. This will resume the downtrend.
Contrary to our assumption, if the bulls defend the support at $131.39 and push the price above $157.36, a move to $200 is possible. Buying in a downtrend can quickly turn the position into a loss, hence, we suggest traders wait for the price to form a reversal pattern before jumping in. Let’s see if we spot any new buy setup on the daily charts that can be traded.
ETH to USD chart: daily
The daily chart also paints a bearish picture. Both moving averages are sloping down and the RSI has dipped close to the oversold levels. This shows that bears are in command. The bulls are attempting to defend the immediate support at $140 but have failed to achieve a meaningful bounce off it.
This is a negative sign. We now expect the bears to attempt to break below the support at $140 and sink the price to the recent low of $131.39. The first sign of strength will be if Ether bounces off the current levels or rebounds off the support at $131.39 and breaks out of the 20-day EMA. Such a move will indicate accumulation at lower levels.
Above the 20-day EMA, a rally to the 50-day SMA is possible. Therefore, the traders can buy if the price closes (UTC time) above the 20-day EMA. However, we suggest keeping the position size small because we do not spot a reliable reversal pattern yet.
FURTHER READING: 16 unlikely cryptocurrency predictions for 2020
FURTHER READING: Bitcoin halving: could it reach $170K per coin?