Price analysis: Bitcoin Hits Six-Month Low

Trading
November 26, 2019

Fundamentals

Bitcoin broke below the key support in the previous week as the crypto community lists potential factors that caused the drop. The rumours first started spreading that the Chinese police raided the facilities of Binance, one of the world’s largest cryptocurrency exchanges, in Shanghai. Reports were immediately denied by Binance’s spokesperson.

“Any reports of a police raid are false. We do not have an office in Shanghai”.

In an additional statement, Binance said that the “team is a global movement consisting of people working in a decentralised manner wherever they are in the world”.

“Binance has no fixed offices in Shanghai or China, so it makes no sense that police raided on any offices and shut them down.”

Zhao Changpeng, CEO of Binance, added on Twitter:

“No police, no raid, no office.”

Similarly, the Chinese crypto community also speculated that Bithumb’s offices were raided as well. The South Korean cryptocurrency exchange joined Binance in quashing rumours that its office in Shanghai was raided and closed. 

“We have one of our blockchain technology research and development teams based in Shanghai and the projects are continuing steadily without pause,” a Bithumb spokesperson said.

It seems that rumours surrounding Binance and Bithumb were initiated by The People’s Bank of China’s (PBoC) statement from last week when it informed the public that it was taking action against entities allegedly involved in trading cryptocurrencies.

“Once it is discovered, it will be disposed of immediately, and it will be prevented from happening early,” it is noted in the statement.

The district administrative offices in Shanghai were ordered to investigate cryptocurrency-related activities in the city and complete investigation by November 22nd. Local offices are then due to report the results of these investigations to PBoC, and will also be required to shut down their businesses, per the order.

Elsewhere, Bakkt - the blockchain trading platform run by the Intercontinental Exchange - said that its Bitcoin futures contracts recorded an all-time daily high of 2,728 contracts worth $20.3 million on November 22nd. These numbers represent a 66% increase compared to the previous day. It was exactly Friday, November 22nd when the price fell below $7000. 

Technicals

Before we analyse the latest Bitcoin’s price movements, we take notice of Peter Schiff’s statement made just last week, one that notes that the world's largest digital asset is on its way to $1,000. The CEO of Euro Pacific Capital highlighted the head-and-shoulders pattern in Bitcoin. 

“For those who can't visualise the potential head-and-shoulders top in Bitcoin maybe a picture will help. Very ominous if the pattern completes,” tweeted Schiff. In general, the head-and-shoulders pattern is seen as a reversal pattern. 

The head-and-shoulders indicator is formed when the asset’s price rises to a peak and subsequently declines back to the base of the prior up-move. What follows is that the price rises above the former peak to form the "nose" and then again moves lower to the prior level. Finally, the price is on the rise again but to the level of the first, initial peak of the formation. This way, the pattern that resembles the head and two shoulders is formed. 


BTC/USD head and shoulders pattern (TradingView)
BTC/USD head and shoulders pattern (TradingView)


The chart above shows the “ominous” pattern that Schiff is talking about, although we are not sure this can qualify as a head and shoulders pattern given the weaknesses of its structure. Still, even if he’s right, the structure points to $5,000 rather $1,000.

Going back to BTC/USD weekly technical analysis, the pair broke below the key support around the $7,500 mark. More importantly, Bitcoin is now trading comfortably below the 61.8% retracement level.


BTC/USD daily chart (TradingView)
BTC/USD daily chart (TradingView)


A break of the $7,500 further complicates life for the BTC bulls. Despite the fact that Bitcoin has been rallying today after printing fresh 6-month low of $6,515, the short-term outlook is bearish. In case it continues to recover higher this week, the $7,300 - $7,500 zone will now act as a resistance. 

On the downside, BTC/USD almost touched the 127.2% Fibonacci extension at $6,466. We may return to test this level if Bitcoin fails to move back above the $7,500 handle. The next major target for the bears is the zone around $5,500 where the confluence of 78.6% Fibonacci retracement and 161.8% Fibonacci extension sit together. 

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