European Union Foreign Exchange

Bitcoin treads water near key support & little to suggest imminent rebound

The Bitcoin, alongside most digital coins has, had a tough month in September so far, weighed down by pessimism that institutional money will probably take longer than previously thought to enter the crypto market, among other factors.

With a Bitcoin-linked ETF now also looking unlikely to be approved by US regulators anytime soon, the negative sentiment currently surrounding the crypto space may well linger for a while longer. That said, a clear break below $5,780 in Bitcoin is needed to signal a resumption of the broader downtrend.

The early days of September were a tough period for the cryptocurrency market, with most coins experiencing sizeable losses amid reports that investment giant Goldman Sachs would abandon its plans to set up a crypto-trading desk. Although the firm’s CFO later described these reports as “fake news”, clarifying that the bank never had a timeline established for this project, the crypto-space did not manage to recover its losses. Adding to the negative sentiment, were news that crypto exchange companies like ShapeShift – one of the last surviving frontiers where users could exchange coins completely anonymously – will now require personal information amid a “know-your-client” and anti-money laundering crackdown.

While such moves may even prove beneficial in the long-term, as phasing out the shady and illicit segments of the crypto market helps to raise the legitimacy of digital coins, they are still negative in the short-run as increased regulation discourages some investors and reduces trading volumes. Regulation is likely to remain a central issue for the performance of Bitcoin and cryptos in general, with lawmakers across the EU urging for common rules to govern the asset class and decrease the risks of fraud. France seems to have taken the lead, having recently approved a legal framework for Initial Coin Offerings (ICO) intended to increase transparency and protect investors.

Hence, a major (and probably long overdue) “clean-up” of the sector seems to be underway, which as mentioned above spells downside risks for cryptos in the short term, particularly for lesser-known alternative coins that may have attracted inflows based on their anonymity merits. Another piece of discouraging news comes from the US. In a recent report, the New York Attorney General’s office found that a significant number of crypto exchanges may be vulnerable to market manipulation, a verdict that likely pours cold water on expectations that US regulators will approve a Bitcoin exchange traded fund (ETF) anytime soon. Such an ETF would make it easier and safer to buy the digital coin, likely injecting a wave of fresh flows into Bitcoin.

Overall, there is little currently on the horizon to suggest a meaningful rebound in Bitcoin, or the broader crypto space, is imminent. Put differently, there may be more pain in store before the sun shines again for the largest cryptocurrency. That being said, for Bitcoin prices to decline further from current levels, they would first need to clear a significant support hurdle; the $5780 area. This key zone has successfully halted several declines in the digital currency in recent months, and a clear break below it is required to signal that the broader downtrend is back in force.

bitcoin btc/usd 22092018

Technically, Bitcoin has been trading within a descending triangle formation since the beginning of March. In case of further declines, immediate support may be found around 5,780, the aforementioned support territory marked by the lows of late-June. If the bears are strong enough to pierce below it, that would reaffirm that the bias remains negative, initially opening the way for a test of the 4,980 hurdle – defined by the high of September 2, 2017. Lower still, the 3,600 zone would be eyed, this being the low of August 22, 2017.

On the flipside, a recovery in prices may encounter a first wave of resistance near the crossroads of the upper bound of the descending triangle and the 100-day moving average, currently located near 6,734. An upside move may see scope for a test of the 7,400 hurdle, with a decisive break above this barrier too likely to pave the way for the 8,450 area, identified by the highs of July 25.

by Marios Hadjikyriacos, XM Investment Research Desk

Marios graduated from the University of Reading in 2015 with a BSc in Economics and Econometrics.

Prior to joining XM as an Investment Analyst in December 2017, he was providing financial analysis, reporting and consulting services to one of the largest financial services firms in Cyprus. He specializes in identifying and forecasting trends in the foreign exchange, commodity, and equity markets, predominantly through the utilization of fundamental analysis.

Besides being an active commentator in financial markets, Marios is a keen follower of economic literature as it relates to moral issues, while he is also intrigued by developments in the field of behavioral finance.

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