After Thursday’s range breakdown, the prospects of a deeper drop in BTC prices have increased, the price-volume analysis indicates.
The leading cryptocurrency, which traded in a sideways manner since Sept. 22, fell sharply to a three-week low of $6,220 on Bitfinex yesterday, confirming range breakdown.
The technical indicators on the daily chart also turned bearish, validating the negative moving average crossover on the long duration charts, as discussed yesterday.
Essentially, bears regained control 24 hours ago, opening doors for a drop to the all-important support of $6,000.
More importantly, the bearish case is now looking stronger than it did 24 hours ago due to these three factors:
BTC breached key trendline support
As seen in the chart above, BTC witnessed a Bollinger band breakdown yesterday and also penetrated the support of the trendline drawn from the June 24 low and Aug. 11 low.
This will likely embolden the bears as the trendline had repeatedly put brakes on the sell-off in the first half of September. Further, the trendline is now acting as a stiff resistance.
Trading volumes jumped to multi-week highs
As can be seen, trading volumes on Bitfinex jumped to five-week highs yesterday. More importantly, total trading volume across all cryptocurrency exchanges rose 36 percent to $5.18 billion – the highest level since Sept. 21 – according to CoinMarketCap.
The fact that trading volumes jumped means a greater reliance can be placed on the bearish move. Hence, a high-volume drop is always considered a strongly negative indicator.
Short positions rose while long positions tanked
BTC’s high-volume drop to three-week lows was accompanied by a 10 percent drop in the BTC/USD long positions and a 7.4 percent rise in the BTC/USD short positions on Bitfinex.
A break below key support, when accompanied by an unwinding of long positions and a rise in short positions, indicates scope for a deeper sell-off.
So, it seems safe to say that for BTC, the path of least resistance is on the downside. As of writing, it is changing hands at $6,312, representing a 0.9 percent gains on a 24-hour basis.
The slight recovery from three-week lows is likely associated with the oversold conditions reported by the relative strength index (RSI) on the hourly and 4-hour chart.
- BTC kick-started a bearish move toward $6,000 yesterday by falling to lows below $6,300.
- The probability of a drop to $6,000 has increased in the last 24 hours as range breakdown was backed by a pick-up in trading volumes and a rise in the short positions and a drop in the long positions.
- A UTC close above yesterday’s high of $6,630 would invalidate the bearish view.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; Charts by Trading View