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Friday Inferno market update

Friday Inferno market update

Analysis

TL;DR violent moves but still range bound, waiting for a breakout.

 

As we reported on Tuesday, bitcoin had spiked higher, back above $4,000, and was forming a potentially-bullish falling wedge. The move also lifted BTC above the key level of the 50-day MA. Looking on the daily chart, price has not stayed above the 50 DMA for more than a few hours or days at the most since August, so this could have been meaningful.

 

However, the wedge was invalidated after a failed upside breakout, after which it became increasingly clear that the momentum was going to be to the downside. $3,800 swiftly followed – right where the 50 DMA currently stands – and then another red candle down to $3,600, with a brief wick down to $3,500.

 

It was a heavy fall, over 10% in a day, but right now bitcoin is still stuck in a range. Zooming out to the daily, we see a band between around $3,600 and $4,100 where bitcoin is currently trading and has traded in the recent past. Bitcoin has made a series of lower highs, and was unable to break resistance at $4,250. Meanwhile there is (for now) relatively strong support at $3,600 – as this last dip shows.

 

Taking a longer-term view from the weekly chart, we can see a cross of the 50 and 100 WMAs is looming, which would be a further bearish signal. That will likely happen towards the end of January. Since we never tested the 200 WMA on volume, we also expect that to occur in due course – forming either a double bottom or sending us into the next phase of the bear market with sub–$3k prices.  

 

Meanwhile, it’s not all bad news. Daily transactions on the bitcoin network have reached a yearly high. Apparently, around 20 percent of these txs come from VeriBlock, and are used to secure other blockchains using Bitcoin’s massive network. Attacks on smaller PoW networks – most recently Ethereum Classic – show the utility of this approach. The state of altcoin blockchains is recorded at regular intervals on a more robust and tamper-proof ledger. It seems that Bitcoin is carving out for itself yet another use case.

 

In short, the long-term fundamentals are strong, while in the short-term sentiment is driving price action. Watch $3,600 and $3,200 closely.

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