Bitcoin Ready for Next Leg Lower

Alan Penny

6 December 2019

3 min read

bitcoin mining on a computer keyboard

  • Lack of adoption of the leading crypto
  • “Death cross” can be seen
  • Longer-term downtrend expected

Bitcoin has struggled to make any real movement over the last couple of days, with it hovering just below the $7500 level. The market has been falling for a while, and there are multiple reasons for this downtrend.

BTC/USD chart

The bearish case

The bearish case for Bitcoin continues to be the most obvious one. To begin with, there’s been a lack of adoption as far as using it as a currency. Ultimately, Bitcoin is far too volatile to use as money, so it is relegated to a simple speculative play. Most businesses don’t accept Bitcoin for payment, and as a result the demand simply isn’t there other than to speculate.

Ultimately, Bitcoin is far too volatile to use as money, so it is relegated to a simple, speculative play

Beyond that, the recent shot higher over China looking to invest in blockchain has been completely wiped out. This was exacerbated by the People’s Bank of China suggesting that investors in Bitcoin should not confuse the cryptocurrency markets with blockchain itself. It’s also telling that the massive move happened over the weekend, when retail traders are active, and conditions are thin.

There is also a trend line just above. As a result, several times sellers have reacted by coming in and pushing much lower. The so-called “death cross” underneath that trendline is getting ready to happen, and this is when the 50-day EMA crosses below the 200-day EMA. This is a longer-term bearish signal as well. Furthermore, we had broken the bottom of a descending triangle above that had support just below the $10,000 level. We retested that over that weekend with the block chain research spike and have fallen gradually since then.

The trade going forward

Based upon the descending triangle, there is a measured move down to the $4800 level, and it’s very likely to reach that area. On rallies, the 200-day EMA near the $8200 level should offer resistance as well sat the first signs of exhaustion it’s likely that the sellers were returned to this market, taking advantage of what has been such a negative trend.

There will be the occasional support level underneath, as we have seen near the $7000 level but there is nothing on this chart that suggests that we can’t get down to that $4800 handle.

It’s not until the trendline gets broken above, at the $8500 level, that one can seriously consider a turnaround and perhaps some type of bullish move. With that in mind, it’s likely to be a scenario where very little can lift Bitcoin at the moment.

This comes at a time when central banks around the world are playing it loose with their monetary policy, and Bitcoin has not benefited. Because of this, it’s very likely that this downtrend in channel shape should hold, and the next couple of months should continue to see even more selling.

Written By
Alan Penny

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