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The big picture is everything right now, so let's start with some context.

Bitcoin

Back on the 10th January I posted this:

Bitcoin parabola

Chart 1: Bitcoin parabola (January 2018)

I later revised this call upwards, calling the bottom on Aug 13th at just above $6000 based on both the growing divergence between altcoins and BTC, and the fact we'd re-entered the 7-year-old log uptrend channel BTC has been carving along the bases of the episodic parabolic blow-offs.

This call proved accurate for 3 months - until the BCH hard fork on Nov 15th threw a whopping spanner in the works.  Thanks BCH..grrr!

BTCUSD daily chart

Chart 2: Bitcoin daily

When BCH forked, people perhaps started to worry that even 'the big 5' cryptos were susceptible to the sort of turmoil we saw with the messy BCH split.  The market jitters caused led to a break of support in a low volume environment, building selling and ultimately a high volume break of the main uptrend.

My first reaction to this was that it was probably a buying opportunity – the trend is your friend - and as I mentioned last week, when assets overshoot support/resistance while oversold/overbought that s/r often acts as an elastic band, 'pinging' the asset back into safety.

But bulls have proven reticent to step in these last few days, meaning the plummet has lasted far longer than I was expecting, despite Bitcoin being the most oversold in history.  The continued drop caused us to finally hit January's original $3000-$4000 target with a low of $3655 yesterday on Bitfinex.

This is bittersweet – while it's always nice to have an old prediction proved right, this drop happened so late in the bear market that it sliced through - and so casts doubt on - our long-term uptrend. Short-term, BTC is the most oversold on the daily chart that it's ever been (blue arrow), MACD is crossing bullish showing momentum potentially turning up, and we had a decent volume hammer on Sunday – all pointing to a probable bounce. But there's no escaping that the longer-term picture has taken a beating here. 

BTCUSD weekly chart

Chart 3: Bitcoin weekly

The weekly chart is what's concerning me somewhat right now. A high-volume move below an uptrend is almost never good, and in this case it's doubly ominous because it has caused an MACD bear cross just as MACD was testing the central zero line from below (which tends to act as a bull-bear line rather like RSI 50). Nasty.

The market really needs to see a short sharp correction upwards to negate the bear cross. There's precedent for such a quick reversal upwards in a similar situation though – the red arrow above back in 2015 was a similar bear cross with oversold RSI, and resulted in a strong sharp bounce, undoing a lot of damage. With both daily and weekly MACDs oversold, such a bounce seems likely. The big question though is 'what then?' - we're out of trend, and old support becomes new resistance, including trends.

BTC really needs to quickly re-establish its foothold on the base of the channel then, for our long-term trend to remain valid. If the bounce is rejected by the bottom of that channel then it'll confirm that our situation - and the long-term trend are changing.   Were that to happen support below is very scarce – the 200 week moving average at $3145 being the only decent safety net really – below that there's not much until (gulp) $670.

Now, putting this in context, the classic 'Market Cycle' pattern does sometimes involve the 'despair' phase ducking underneath the long-term mean:

Market cycle

Chart 4: Market Cycle

However, weighing against this is that some of our in-house research is pointing to a break of trend in the number of active Bitcoin wallets this year.

BTC active wallets

Chart 5: Bitcoin active users (chart: Xiao Lu, BCB Group)

The proliferation of new cryptocurrencies has of course always been a threat to BTC's market share, although whether the slip in active wallets is being caused by this, or is just a temporary blip in light of the parabolic blow off remains to be seen. The active wallets figure has only returned to 2016 pre-parabola levels after all, and maybe just shows that most retail FOMO traders who bought the curve are out at this point.

So, to summarise then, the next couple of weeks are crucial to BTC's long-term prospects - this move below trend needs to reverse fast, and we need to reattain the long-term channel post-haste. BTC is in a good position for a short-term bounce, but it's all about what happens as we near the channel bottom from below. If we fail to reattain it then we're potentially looking at a change of leadership, with all the tumult that may come with that. Nail-biting stuff.

Ethereum

ETHUSD daily chart

Chart 6: Ethereum daily

Ethereum printed a really nice high volume hammer yesterday and is also hugely oversold on the daily – both point to a bounce imminently, at least up to the $180 level. Good job too, as there's scarce support below weak support at $91 then $53. Again, we really need to get back up into that $200 zone sharpish or things will look bleak.

Ripple

XRPUSD daily chart

Chart 7: Ripple daily

XRP continues to look pretty good compared to most. Another nice hammer yesterday on good volume, holding support at $0.38, still well off the lows. $0.45 is our target for a bounce.

Litecoin

LTCUSD daily chart

Chart 8: Litecoin daily

Litecoin's at support, very oversold, with MACD curling up. We're looking at a likely bounce up to the first green dashed s/r line – which is $46 (ignore the yellow label to the right of it).

Bitcoin Cash

BCHUSD daily chart

Chart 9: Bitcoin Cash daily

Since the ABC fork appears to be taking over the BCH mantle, I'm charting that going forward.

BCH is very oversold obviously, the lack of volume on yesterday's hammer was notable though, and points to relative weakness – people have clearly been shaken by the messy fork. From a support/resistance point of view, it looks like clear sailing for a bounce up to $415 – but I suspect BCH may underperform for a while.

The next couple of weeks then are key – I'll be watching closely to see if BTC's leadership looks to really be at an end, or will return to its former uptrend with new vigour. Stormy times indeed.

DISCLAIMER
BCB Group has no position or opinion on the price of Bitcoin or any other cryptocurrency and this article should not be construed as analysis of or advice regarding the current or future market price of Bitcoin or any other cryptocurrency. No analysis of the price movements of BTC or any other cryptocurrency or any other asset provided by BCB Group should be construed as an invitation or inducement to buy, sell or otherwise to trade BTC or any other cryptocurrency.

Jon Cotton

Jon Cotton

Strategy and Execution Partner

Jon is BCB’s head strategist, with an emphasis on market intelligence. An expert in behavioural science and highly experienced chartist, Jon has been providing BCB’s clients with crypto and macro technical analysis since 2017, and has quickly gained a reputation for accuracy after correctly calling the December 2017 top and August 2018 bottom.

Jon is also MD of British music production company Poseidon. He began studying technical analysis in 2000 due to its overlap with behavioural economics – much used in Poseidon's international marketing work, which has seen the company achieve three iTunes US number one albums among other notable successes.