TA of the Day: Bearish Momentum Develops in Bitcoin

The US government recently moved more than 10,000 bitcoins (BTC) from a government-linked wallet, a transaction worth about $600 million, to a wallet linked to Coinbase Prime.

This move follows an earlier transfer of $2 billion at the end of July. The US government currently holds about $12 billion in bitcoin, mostly from law enforcement actions such as the Silk Road seizure.

The US Marshals Service recently awarded Coinbase a contract to manage large-cap cryptocurrency assets. So this transfer could be for custody purposes rather than an intention to sell.

While it is unclear what will happen to the bitcoins after the transfer, should the crypto market be concerned that the government might sell this bitcoin, which would flood the market with supply and cause prices to fall?

It looks like that’s exactly what could happen now.

Welcome to TA of the Day (TAOTD)! 👋

Let’s focus on the current technical configuration of BTC/USD based on the 4-hour chart:

BTC./USD 4H Chart by TradingView

📈 Technical analysis of BTC/USD 4-hour chart

Using the technical analysis concepts covered in our forex course, let’s analyze BTC/USD.

Mobile Media (SMA):

1. 10 period SMA: Positioned at 59,139. The price is currently below this level, indicating short-term bearish momentum. The down the slope suggests continued price pressure.
2. 50 period SMA: Positioned at 59,501. The price is also below this level, confirming bearish sentiment in the medium term. The slope is downsupporting a continuation of the downtrend.
3. 100 period SMA: Positioned at 60,184. The price is below this level, strengthening the bearish outlook. The down the slope indicates that bearish momentum is sustained in the medium to long term.
4. 200 period SMA: Positioned at 62,894. The price is significant below this level, indicating a long-term bearish trend. The down the slope suggests that the long-term bearish trend is well established.

Relative positioning of mobile media:

• The 10 period SMA it is below THE 50 period SMAwhich is below THE 100 period SMAand all three are below THE 200 period SMA.
• This alignment in a bearish order (short-term SMA below long-term SMA) strongly supports the continuation of the downtrend on several time frames.
• The BROADEN divergences between these moving averages indicate increasing bearish momentum.

Market structure:

• General structure: The market structure is predominantly bearish in the short to medium term, with a series of lower highs and lower lows since mid-July.
• Character Change (ChoCh): The most recent reversal occurred when the price dropped below 60,000 after previously forming a higher low.

RSI (Relative Strength Index)

• RSI (14): The RSI is currently at 38.16, indicating that the market is bullish oversold conditions.
• This suggests that while the overall trend is bearish, there could be a short-term pullback due to the oversold nature of the market.

🕵️ Key observations

Price action:

Let’s analyze the recent BTC/USD price action based on the chart:

1. General downward trend: The price has been in a general downtrend since mid-July, characterized by lower highs and lower lows.
2. High Previous: At the end of July, bitcoin reached a high of around 70,000, which marked the beginning of the current downtrend.
3. Significant decrease: After the high in July, there was a sharp decline to around 53,500 in early August, representing a substantial decline in prices.
4. Recovery attempt: After touching the low of 53,500, there was a notable attempt at recovery, with the price coming back to around 62,000.
5. Resistance Rejection: The recovery was met with resistance around the 62,000-63,000 level, which coincides with the 100 SMA, leading to a rejection.
6. Consolidation phase: For about a week in mid-August, the price consolidated in a range between about 58,000 and 61,000.
7. Sharp recent decline: The latest price action shows a sharp drop from the consolidation range, dropping below 58,000 and dropping to current levels around 57,115.
8. Increased volatility: Recent candles show increased volatility, with longer candlesticks indicating indecision and rapid price swings.
9. Spike volume: There is a noticeable increase in trading volume accompanying the recent price decline, suggesting strong selling pressure.
10. Support test: The current price is testing recent support levels, trying to stabilize after a sharp decline, with an immediate focus on the 56,700 area.

Support and resistance levels:

• Long-term durability: 70,000 (July peak)
• Major resistance: 62,755 (aligned with the 200-period SMA) a crucial resistance level that the price needs to break to reverse the bearish trend.
• Immediate resistance: Immediate resistance is seen at 60,000, aligning with the 100-period SMA, where previous attempts to break higher have failed.
• Immediate support: Immediate support is around 56,700, with further support at 53,500, aligning with previous price action and a significant swing low.
• Major support: 53,500 are significant levels to watch, 53,500 being a critical level where buyers could intervene more aggressively.
• Psychological support: 55,000 (round number).

RSI (Relative Strength Index)

• Trending downconfirming the downward trend in prices.

Volume Analysis:

• Volume has picked up slightly during the recent decline, indicating that the move lower is supported by stronger selling pressure.

🤔 Potential commercial scenarios

Is BTC/USD a buy or a sell?

The following business scenarios are provided for educational purposes only. As they do not include complete risk management practices, they are not intended to serve as actual trading recommendations, but only food for thought to help you generate your own trading idea.

Long bias:

• Point of consideration: Consider entering a long position if the price finds support near 56,700 and shows signs of a rebound, such as a bullish reversal candlestick pattern or a positive divergence on the RSI.
• Invalidation point: Consider setting a stop-loss below 55,000 to manage downside risk.
• Potential target: The initial target would be 59,000, with a secondary target of 60,000.
• Motivation: A bounce back from the 56,700 support level, combined with near oversold RSI, suggests the potential for a near-term rally. However, given the broader downtrend, this would be a counter-trend trade with tighter risk management.

Short bias:

• Point of consideration: Consider entering a short position if price fails to break above the 60,000 resistance level and shows signs of further bearish momentum such as a resistance rejection or continuation patterns such as a bear flag .
• Invalidation point: Consider setting a stop-loss above 60,500 to limit exposure to a potential bullish breakout.
• Potential target: The initial target could be 53,500, with potential further declines if the bearish momentum continues.
• Motivation: A break above key resistance levels combined with the overall bearish trend suggests that a continuation of the downtrend is more likely, making a short position favorable.

📝 Summary of TAOTD

Recent price action suggests that Bitcoin is in trouble significant selling pressure.

It is at a critical juncture, testing recent lows and approaching critical support levels.

Traders may be watching closely to see if the current support holds or if there will be a further breakdown.

The market structure on the 4-hour chart suggests that BTC/USD is in a bearish phase with the potential to decline.

The breakout from the recent consolidation, the sharp move down with increased volume and the alignment of technical indicators (price below SMA, bearish RSI trend) support this view.

However, the approach of significant support levels and the potential for oversold conditions suggest that a near-term rebound or consolidation could occur.

The overall structure remains bearish until there is a clear break above recent lower highs.

Key immediate levels to watch are the 56,700 support (a break below could accelerate the downtrend) and the 59,000-60,000 resistance zone (a break above could signal a potential trend reversal).

You should closely monitor price action at these levels to determine optimal entry points.

This content is for informational purposes only and does not constitute investment advice. Trading any financial market involves risk. Please read the Risk Disclosure to ensure you understand the risks involved.