Just one month ago I asked, “Is There Trouble Ahead for Bitcoin?”
My concern was that the “King of Cryptocurrencies” had fallen below all the various moving average lines on its chart.
And the 9- and 20-day exponential moving averages (EMA) were set to cross below the 50-day moving average (MA) – thereby completing a “bearish cross.”
A bearish cross often leads to even lower prices…
And it has. Bitcoin was trading near $21,117 when we published that essay. Today, it’s trading near $18,700. That’s more than an 11% drop in just one month.
Today, I’ll ask a similar question… Is there more trouble ahead for bitcoin?
To find out, let’s look at this chart…
Bitcoin is currently testing the support of the $18,700 level (dashed line). It has tested this support level five times over the past three months.
The price of bitcoin bounced on the previous four tests. It’ll be interesting to see if it can bounce right now on the fifth test.
You see, each time a support level is tested, the support weakens a bit. And the more tests there are within a relatively short time frame, the more likely that support will eventually fail.
So, bitcoin is in a precarious position right now.
Yes, support could hold again and bitcoin could bounce from here…
If so, the “King of Cryptos” could be trading back up to its September high near $22,000 in the days ahead. An even stronger bounce could push bitcoin back up towards its August high near $24,500 over a couple of weeks.
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That seems like some fairly good upside potential. But if support breaks, the downside potential is even larger.
Take a look at the long-term chart…
The current support level at $18,700 lines up with a former resistance level from late 2020 (top dashed line).
If this level fails, then the next support comes in around $12,000 – which is the former resistance level from August of 2020 (bottom dashed line).
It could go either way, of course. But given last month’s bearish cross of the moving average lines – and given the recent multiple tests of support – it looks to me like the bitcoin bears have the edge in this scenario.
In other words, there’s most likely some more trouble ahead for bitcoin.
Best regards and good trading,
In today’s mailbag, a reader shares their thoughts on Jeff Clark’s essay about the Treasury Bond market…
The bond selling isn’t going to end soon as the Federal Reserve is slowly liquidating its bond portfolio that it bought during the pandemic. This will cause interest rates to stealthily go up – and bond prices and TLT to fall for quite a while.
– Gene S.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].