Crypto Price Analysis: Bitcoin Dump Exposes Bear Weakness

Bitcoin (BTC/USD) went from an April 2019 open of $4,196.80 to as high as $5,488 on April 10 on Bitfinex. That’s an impressive 30% run in a week and a half. If the market is still on a downtrend, bears would punish that move with a massive dump just like how they killed every bullish rally in 2018. We were closely watching Bitcoin yesterday for any sign of a bearish insurrection.

We did not see any.

Yesterday’s dump was another opportunity for bears to wrangle market control from the bulls but they just didn’t show up. The selloff was nothing more than a shake out and we have technical indicators to support this view.

In this article, we reveal how yesterday’s Bitcoin dump exposed bear weakness.

Dump Came With Anemic Volume in Overbought Conditions

Back in 2018 when Bitcoin was dominated by bears, sellers shorted every rally with conviction. For instance, on February 21, 2018, BTC dumped after a strong rally from $6,000 to $11,788 with decent volume of nearly 77,000 Bitcoin units. The same scenario happened again on April 25 and on September 5. In all of these selloffs, volume was elevated and the daily RSI did not cross overbought territory.

2018 Bear market dumps

If Bitcoin is still bearish today, we should be seeing similar signals from technical indicators. After all, the market is currently trading in extreme overbought territory. Bears should be flexing their muscles and driving Bitcoin down with heavy volume. We’re getting none of that.

April 11, 2019 Bitcoin dump

Yesterday’s selloff came with a measly volume of 19,430 Bitcoin units, considering that Bitcoin was already trading in extreme overbought conditions. This was a weak response from the bears. The relatively thin volume leads us to think that the ~5% drop yesterday was more of bullish exhaustion than a bearish uprising.

Allowed Bulls to Flip Resistance into Support

With such a weak response, bears have given bulls the opportunity to flip the price area between $4,800 – $4,900 into support. A look at the weekly chart shows that $4,800 – $4,900 used to be a key resistance in 2017. When the market broke it, Bitcoin started its parabolic ascent.

Weekly chart of BTC/USD

This is a pretty bullish market structure. The reclamation of this area tells us that bulls have the space to establish a new base between $4,800 and $4,900. This view is aligned with our statement that yesterday’s selloff was a product of bullish exhaustion rather than bearish control. If our read is correct, we can expect Bitcoin to trade sideways in the coming weeks as it consolidates.

Bull Flag in the Works

With sideways consolidation on the horizon, BTC might be in the process of painting a bull flag. A bull flag suggests trend continuation. In other words, Bitcoin will likely resume its uptrend once sellers are exhausted.

Bitcoin bull flag

Bitcoin’s current market structure is reminiscent of Litecoin (LTC/BTC) after it breached its accumulation resistance of 0.01. Bear response was also weak, which enabled bulls to print a bull flag. After a month of consolidation, the market broke out of the flag and rallied hard.

Litecoin daily chart

Notice the resemblance? This is how we picture Bitcoin may be performing in the coming months.

Bottom Line

The weak response from bears makes us think that Bitcoin will consolidate in the next few weeks. If we’re correct, the market might ignite a disbelief rally in a month or so.

 

Disclaimer: The writer 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.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.