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Following the creation of an 18-month high just below the $14,000 handle in June, bitcoin has been moving back lower to retest the major bull/bear line, (the blue diagonal trend line), which currently sits at around $9,300. The move higher was initiated at the start of this year, when the bears couldn’t break below the 200 WMA (the red ascending line). Currently, bitcoin is more than 12% down on a weekly basis.
In May, the bulls had one of the best months in bitcoin history, as the value of the world’s biggest digital coin almost doubled. Ultimately, the major bull/bear trend line got broken in June. This trend line supported bitcoin’s ascendance until October last year, when the break of the line initiated the overall bearishness of the entire cryptocurrency market.
Still, the bulls have managed to recover and test the key 61.8% Fibonacci retracement, located above the $13,000 handle. Obviously, many of the bulls closed their position near this target, while the bears, on the other side, used this opportunity to get back in the game.
A strong rejection at the 61.8% retracement resulted in the creation of a shooting star candle, which represents a bearish reversal pattern that typically occurs at the top of uptrends. By its definition, the shooting star formation is created when the open, low, and close are roughly the same price, but the long upper shadow signals tiredness of bulls.
In the following weeks, the price action rotated back lower to retest the major bull/bear line, now supported with the horizontal line (the purple line). The first retest occurred last month, when the bulls successfully defended this support zone. However, the attempted recovery ended quickly, which ultimately resulted in another test of the major support. Still, the bulls held their ground and managed to get the price above $12,000 once again.
In the meantime, the major support zone became even stronger following the arrival of the 100 DMA, now sitting around $9,700. The price has already tested DMA, which successfully managed to provide additional support. As seen in the BTC/USD price chart above, bitcoin created a hammer yesterday, which is a bullish reversal pattern. What may worry the bulls is the fact that there has been no follow up today on the hammer candle, signaling the bulls are tired.
The crypto community has been speculating in recent days that the latest bitcoin slump was connected to a $3 billion Chinese Ponzi scheme, revealed first by Dovey Wan - founding partner of blockchain-based investment company Primitive Ventures - on Twitter.
Accordingly, the China-based startup PlusToken was created in mid-2018 in the classic Ponzi scheme manner. Since then, four of its founding members accumulated approximately $3 billion worth of digital assets, including Bitcoin (BTC), Ether (ETH) and EOS.
As Chinese authorities have been on their tails in the recent weeks, PlusToken had started selling their assets in July, which coincides with the bitcoin sell-off. Before Wan called attention to PlusToken, many China-based traders had reported suspicious activities involving a wallet selling 100 bitcoins on a major cryptocurrency exchange.
Coming back to the technical aspect, the chance of the third retest has now increased. A break of this zone will likely cause a major headache to both bulls and bitcoin enthusiasts, as this may pave the way for a bigger retracement - at least to $7,000, where the 100 DMA currently sits. At this point in time, the major support zone consists of the key ascending trend line, the horizontal support and the 100 DMA. Although this strong support provides bulls with a higher chance to win short-term, the potential break may cause major mid to long-term damage.
On the upside, the bulls will have to break this trend of the three recent lower highs by moving north of the $12,500. If this is the case, then we are looking at another attempt to take the 20-month high around $14,000 and finally be in a situation to retest the all-time high just below the $20,000 psychologically-important level.
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