So Bitcoin surged by a total of 5% today, April 6th, to reach a high of around $7,150 - what now?
Well, this breakout looks pretty strong and is very promising considering the fact that the volume is finally rising. The cryptocurrency had been trapped within an ascending triangle pattern for the past 3-week straight (highlighted in pink on the charts further below).
With this increased volume, it does seem that this will not be a false breakout like we had last week on April 2nd, 2020. Instead, this looks like it might just be the driving catalyst that we need to head back toward $8,000 and above.
Before we take a look at the charts, let us quickly take a look at the fundamentals and see what has been driving the price increase.
Bitcoin Halving Only 35 Days Away
Before the Coronavirus outbreak, the most anticipated fundamental factor within the cryptocurrency was the upcoming block halving for Bitcoin. Well, this halving is now only a short 35 days away!
In 35 days, on or around May 11th, 2020, we will see the block reward for Bitcoin being slashed in half from 12.5 BTC per block to 6.25 BTC per block.
As we all know, a reduced influx of supply creates further scarcity within the industry. With this reduced incoming supply, this means that less BTC will be reaching cryptocurrency exchanges from the miners - effectively reducing the supply of BTC on cryptocurrency exchanges. With reduced supply and the same level of demand, the price for Bitcoin should start climbing much higher.
As the date of the halving is known, we usually see an increase in price during the run-up toward the halving. This is because investors expect ‘something’ to happen toward that date which causes them to buy which leads to BTC increasing. This creates a self-fulfilling cycle as other investors see the price of Bitcoin increasing causing them to buy also - further increasing the price for Bitcoin.
However, there are some analysts that are predicting Bitcoin could actually crash after this upcoming halving. The main reason for the crash would be a mining war in which large scale mining operations use the Bitcoin halving to drive out their competition to gain a monopoly.
Large scale mining operations are able to mine at a loss for a longer period of time than their small-scale competition. This would force small scale mining operations to close down whilst leaving the market share for those that are able to survive.
This had led to some analysts actually predicting that Bitcoin might drop as low as $2,000-$3,000 post halving.
Stock Markets Around The World Start To Rebound - Dead Cat Bounce or Actual Recovery?
Stock markets around the globe are starting to rebound this week - led by the Asian markets such as the Nikkei 225 (+4.25%) and even the Australian markets that are up 4%.
This stock market price increase is also extended throughout Europe and the US as the German DAX 30 is up almost 5%, the UK FTSE 100 is up 3%, and S&P 500 Futures are up 4%. This can be seen on the chart below;
Looking at the YTD above chart, we can see the SPX (orange line) rebounding from its 30% losses of 30% to bring them up to just -19% loss since the start of the year. This sentiment is further shared with the DAX 30 (blue line) that has rebounded from its 36% loss during the March sell-off to reach just -25%. The UK 100 is also recovering from its -34% loss to bring it up to just -27%.
However, some analysts are calling a dead cat bounce and are skeptical that this is indeed a market recovery.
A dead cat bounce is a trading term to describe a scenario in which the stocks rebound sharply from a prolonged market decline. It is what is known as a short-lived recovery and it gets the name from the saying of “even a dead cat will bounce when it falls from a great height”.
So, why could this be a dead cat bounce?
Well, first of all, we need to remember that we are still within the midst of the Coronavirus pandemic. The number of Coronavirus cases recently passed the 1 million mark last week and this is only expected to continue to rise.
We are not even near the peak right now and pretty much nobody knows when this will come.
This creates further uncertainty within the market and investors HATE uncertainty. They would rather hold cash until they know that the world is back on its feet which would cause further declines within the market.
Unfortunately, as people continue to die within the US (and around the globe) markets will still be in a state of panic and we are likely to see further lows moving forward.
Even with the latest US Federal Reserve stimulus packages, we are still likely to hit a recession even after the pandemic has come to a conclusion. With over 6 million people filing for unemployment last week in the US alone, the economy has a very long way to recover.
You only need to take a look at the chart below to see how SIGNIFICANTLY higher the US unemployment numbers are right now relative to history;
As you can see, we are in a pretty dire situation and it will certainly take much longer than a week or 2 for any economy to recover from this.
But this does not mean that Bitcoin cannot surge.
Although Bitcoin is still moving in tandem with the global economy, there is still a chance that Bitcoin can continue to surge if it manages to decouple from the economy when they start to fall again.
Let us take a look at the Bitcoin market and highlight some potential areas of support and resistance moving forward.
Bitcoin (BTC) Price Analysis
BTC/USD - MEDIUM TERM - DAILY CHART
What Has Been Going On?
Taking a look at the daily chart above, we can clearly see Bitcoin being trapped within an ascending triangle pattern, marked by the two pink lines, over the course of the past 3 weeks.
During the weekend, the market managed to break marginally above the resistance, providing the first sign that a strong move higher was imminent.
Today (April 6th), we can see Bitcoin surging above the resistance at $7,000 to reach as high as $7,100. This breakout is accompanied by a slight increase in volume which suggests that the market might be able to sustain this breakout.
HOWEVER - the candle has not yet closed and the closing price is the most important factor in all of this. We MUST wait for Bitcoin to close ABOVE $7,000 to confirm that this is indeed a true breakout, in which case, we can expect the cryptocurrency to begin the recovery back toward $8,000.
Are We Bullish Or Bearish?
Well, over the medium term we are still bearish until Bitcoin can break the March highs at around $9,000. However, with the breakout above the consolidation pattern and the push above $7,000 we can consider the market to be bullish in the short term.
To turn bearish, the market would need to drop back into the triangle and then move on to break beneath the triangle.
Where Can We Go From Here?
If the buyers continue to drive higher, the first level of strong resistance is located at $7,225 which is provided by a bearish .5 Fibonacci Retracement level. This bearish Fibonacci Retracement level is measured from the February high to the March low.
Above this, resistance lies at $7,570 and $7,700. The resistance at $7,700 is provided by a 1.618 Fibonacci Extension level and is further bolstered by the 100-days EMA. Beyond this, the next level of resistance is located at $8,000 which is provided by a bearish .618 Fib Retracement level and strengthened by the 200-days EMA.
If the bullish pressure continues to drive Bitcoin above $8,000, we can expect resistance at $8,400, $8,613 (1.618 Fib Extension - green), $9,000, and $9,116 (bearish .786 Fib Retracement).
On the other hand, if the sellers push Bitcoin lower again we can expect the first level of support to be located at $7,000. Beneath this, support lies at $6,800, $6,500, $6,4000, and then at the lower boundary of the triangle. Beneath the triangle, support lies at $6,000, $5,750, and $5,5500.
What Are The Technical Indicators Showing?
The RSI has risen further higher from the 50 level which shows that the bullish momentum is increasing. It has now passed the highest level that was seen in March which is a strong sign that this bullish increase should continue further higher.
However, the Stochastic RSI is currently trading in oversold conditions. A bearish crossover signal on the Stochastic RSI would be the first sign that the bullish momentum is starting to fade.
Conclusion - So What Now?
Despite the uncertainty within the overall global economy I am still pretty bullish for Bitcoin in the lead up toward the halving event. Although the stock markets may be recovering this week, I do not expect this to be an actual recovery - especially considering the fact that we have still not even reached the peak of the pandemic. Nevertheless, I do believe that Bitcoin can decouple from the overall stock market trend and continue to increase even if the global economy starts to retract again.