Bitcoin Price Analysis: Volatility Hits Two-and-a-Half-Month Low as Bulls Struggle to Overcome $3,500

Bitcoin’s price action continued to narrow on Tuesday, as volatility plunged to its lowest level since mid-November, offering cautious optimism that the worst of the downtrend had passed.

BTC/USD Update

Bitcoin rose modestly through the early morning, gaining 0.4% to $3,424.14, according to Bitstamp. The leading digital currency has seen a rise in momentum based on the hourly chart, with the Relative Strength Index (RSI) approaching the high-50, low-60 territory. Price action could be seen hovering close to the 50-period moving average.

The daily chart analysis follows a similar pattern, though underlying momentum is weaker.

Aggregate data courtesy of CoinMarketCap show an average bitcoin price of $3,470.08, an increase of 0.5%. The higher average price is likely skewed by Bitfinex and other exchanges where bitcoin is trading at a premium.

Bitcoin’s 30-day volatility index, which captures the magnitude of the asset’s daily fluctuations over that period, fell to 2.34% on Monday, according to bitvol.info. That’s the lowest level since Nov. 18, which was right around the time the market resumed its descent following months of stability. More on this story from Nov. 25: Crypto Selloff Deepens as Bitcoin Cash Hard Fork Proves More Costly Than Ever Predicted.

Volatility has been on a downward path since mid-December when it peaked near 6%. Paradoxically, the decline in volatility has been accompanied by a steady uptick in daily trade volumes, which reflects a higher circulating supply.

Over the past 24 hours, bitcoin’s trade volumes reached $5.3 billion, according to CoinMarketCap. BitMEX, the single largest market for BTC trades, has seen its share of the overall turnover fall to single digits. The spot market now represents 92% of exchange-based trades.

Have We Reached Bottom?

One of the most elusive questions to emerge from the 2018-19 bear market is whether bitcoin has reached a definitive bottom. Although many in the crypto community believe the worst has already passed, the last three weeks suggest further pain could be on the way.

Since reaching lows near $3,100 in December, bitcoin has seen a progressive wave of lower highs. The fall last week below $3,550 could prove costly for the bulls in the short term.

“The Crypto Dog,” a popular bitcoin analyst, recently proclaimed that a fall to $1,800 is possible as the bear market grinds lower. This drop would inflict pain across the crypto market, possibly causing Ethereum to fall to $50.

However, such developments mean bitcoin would need to fall a further 50% from current levels. This seems highly unlikely given the positive fundamental forces at play, not to mention the technical barriers that would prevent such a fall.

Pantera Capital CEO Dan Morehead recently noted that we are in the second major ‘crypto winter,’ but that the current environment is much better than the 2014-15 bear market. The key difference boils down to fundamentals. Blockchain technology and bitcoin were relatively unknown four years ago; today, they are household names. Their impact on traditional finance and institutional investors is beginning to take shape. This should provide bitcoin with a firm price floor once the technical tug-of-war between the bulls and the bears concludes.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi