Bitcoin bears remain in control
Bitcoin and cryptocurrencies remain in focus in the financial news this year. The latest story claims the general public were sucked into a classic ‘pump and dump’ last year.
Pump and dump is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price.
According to CNBC, Bitcoin’s epic rise last year may have been more than investor fervour. It cites research suggesting that at least half of the jump in Bitcoin was due to coordinated price manipulation.
University of Texas finance professor John Griffin, who has a 10-year track record of spotting financial fraud, and graduate student Amin Shams examined millions of transactions on cryptocurrency exchange Bitfinex. In a 66-page paper, the authors found that tether was used to buy Bitcoin at key moments when it was declining, which helped ‘stabilize and manipulate’ the cryptocurrency’s price.
‘Fraud and manipulation often leave footprints in the data and it’s nice to have the blockchain to track things,’ Griffin told CNBC.
The press certainly played their part in stirring the mania last year, helping to spread the news of the meteoric price rises and thus keeping the party going through to December. Of course, those responsible for helping to artificially support the price then started dumping their holdings.
Since December the price has crashed from $19,666 to $8780 this week, a loss of almost $14,000 or over 70%. Now that is a serious crash by anyone’s standards.
As you can see in the weekly chart, once the 11-month trend line was broken in early June, we started yet another leg lower in the bear trend (as we expected!). The recent losses are significant because over the weekend we broke the previous crash low of $5920. A bear market is characterised by consistently lower highs and lower lows as the price trends down.
The next target on the weekly chart appears to be the September 2017 high of $4980, with support a little lower at the 100-week moving average at $4610/4600, not far from further support at the 78.6% Fibonacci support at $4365.
The market is only just becoming oversold on the weekly chart so there’s no reason for the market to reverse at this stage. Even on the daily chart we are not oversold despite the recent leg lower.
The green 500-day moving average at $6070/6050 in the daily chart is the only hope for bulls at this stage.
The red hammer candle on 24 June is a type of bullish reversal candlestick pattern, made up of just one candle. It allowed the price to close above the green 500-day moving average in a very mildly bullish signal. This is not the sort of pattern that signals the end of a bear market normally, but when combined with the 500-day moving average it deserves more attention.
Until we see a developed longer-term bullish reversal pattern, any recovery is likely to be short lived, but above $6250 could target $6530 and quite strong resistance at $6750/6800.
It should be a major challenge to break above here but if bulls are successful they can then go for $7000/7050 and perhaps as far as the strong resistance at $7360/7380.
Technical Analyst & Trader
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