Price analysis: Bitcoin breaks below 200 DMA
China is continuing to talk up Bitcoin as the state-owned Xinhua, a publication of the People’s Republic of China, published an article “Bitcoin: The First Successful Application of Blockchain Technology”. In general, the article explained how blockchain technologies work, how the Bitcoin itself is designed, as well as the process of mining halvings. However, the article wasn’t all that positive.
“The price of Bitcoin is subject to large fluctuations. Bitcoin is just a bunch of data. If it is not linked to real money and physical goods, it is difficult to ensure the stability of its price,” it is stated in the Xinhua.
“Unlike legal currency, in the absence of legal constraints, physical owners can hook and decouple with Bitcoin as they wish, making Bitcoin very susceptible to irrational emotions and large fluctuations in prices,” the author of the article concludes.
The Xinhua publication comes only two weeks after President Xi reportedly said that his country should seize opportunities offered by blockchain, Bitcoin’s underlying technology. As a result, Bitcoin has moved more than 30% higher in less than 48 hours since Xi’s comments hit the wires.
“We must take the blockchain as an important breakthrough for independent innovation of core technologies,” Xi said.
In more China-related news, it seems that China's National Development and Reform Commission (NDRC) has given up on plans to eliminate mining of the cryptocurrency. In April, the NDRC sought public opinion on a revised list of industries it wanted to encourage, restrict or eliminate. Bitcoin mining was included in the list at that time.
However, it looks like the final list doesn’t include or mention cryptocurrency mining. So far, no justification has been provided as to why cryptocurrency mining has been excluded from the list.
Despite Bitcoin’s struggles to stay above the psychologically-important $10k level, Facebook's head of cryptocurrency projects, David Marcus, continues to be very bullish on the world’s largest digital coin.
"I don’t think of Bitcoin as a currency. It’s actually not a great medium of exchange because of its volatility. I see it as digital gold," said Marcus while speaking at the New York Times DealBook Conference last week.
Currently, Bitcoin’s market capitalisation is around $160 billion, compared to $8 trillion of gold.
"Bitcoin is an investment class that’s decorrelated from the rest of the market. Why feel threatened by that? People don’t use a unit like digital currency of Bitcoin to pay for things just because it’s so volatile. It serves a completely different purpose," concluded Marcus.
Technically speaking, last week Bitcoin created an important bearish step towards the test of a very important support around the $7,500 mark. The price action finally broke below the 200 DMA (the light blue line) support near the $9,200 mark, after it has been glued to it for almost 10 days. The Bitcoin price chart below shows the break of the 200 DMA, as the price action trades below the 100 DMA as well.
The confluence of the 100DMA and 200 DMA will now act as a major resistance around the $9,300 mark. In addition, the slightly ascending trend line (the thin red line) will also add to that resistance. As seen in the daily chart above, the price action is now trading below the important horizontal support (the horizontal blue line) at $9,090. All in all, Bitcoin’s most recent price action has all elements of a bearish trading setup.
The weekly chart offers us a few hints about levels that may attract the price action in the coming days. First support comes around the descending trend line (the red line), which connects the lower highs starting from the two-month high of $10,350. The trend line currently comes around the $8,100 handle.
The second horizontal support (the lower blue horizontal line), together with the 100 WMA, create a major confluence of support around the $7,500 mark. Judging by the most recent price developments, Bitcoin is well-positioned to continue its take down the current slide well below the $8,000 handle.