Bitcoin [BTC] halving took place successfully at block height 630,000 at 15:23:43 UTC on 11th May 2020. The week following the event saw massive trading volumes and volatility. The market sentiments reflect bearish sentiments.
The percentage gain from the swing low around $3850 to the high at $10,075 is over 150% in six weeks. Moreover, the effects of the COVID-19 lock-down are starting to precipitate in the economy as the world begins to resume ‘with precautions.’ The price of Bitcoin [BTC] corrected from $10,000 to find support from the 200-Day Moving Average at $8000. Presently it is ranging between $8300 and $9000.
There are a couple of reasons both fundamental and technical which points at a deeper pullback.
Miner Capitulation
As reported earlier on itsblockchain – Miner Capitulations Accelerate Bottoms, and lead to bullish reversals in the long-run.
The capitulation usually begin with a drop in price, which reduces profitability. This time the profitability has declined intrinsically by design. Nevertheless, according to the reports, it is likely that we witness a 20-35% drop in the total hash-rate of the network. Hence, there is a possibility of accelerated selling of Bitcoins in the early days. Capitulation are characteristic of bear markets.
When it low profitability becomes unsustainable, the miners capitulate – hashing power and network difficulty reduces (ribbon compression), leaving only the strong, who sell less leaving more room for more bullish price action. Hence, capitulation leads to a bullish accumulation. However, it begins with massive sell-offs.
Notice in the chart above, how capitulation coincides with extreme bearish weeks in the last two years. However, since it is not a sudden reaction to price and a planned event, the miners would have likely made arrangements to reduce the pressure on them to sell Bitcoins. Hence, the network might begin to see bullish accumulation before a significant break-down.
COVID-19 Ridden Economy and Exchange Profits
A lot of recent pull-back can be attributed to short-side liquidity combined with the halving pump. Bitcoin [BTC] bulls front ran it’s correlation with the SPX index, where the positive correction in SPX was around the 61.8% Fibonacci Retracement, while that is Bitcoin was around 15% above the break-down levels. Given the recent correlation, there is strong reason to believe that if S&P melts down we can see a strong pullback in Bitcoin as well.
Even the CEO of one of the largest Bitcoin derivatives exchange, Arthur Hayes expressed his apprehensions around the sentiments. He said,
Bitcoin will be owned un-levered. Could the price retest $3,000, absolutely. As the SPX rolls over and tests 2,000 expect all asset classes to puke again. As violent as the Q1 collapse in asset values was, we have almost 100 years of imbalances to unwind the ancient regime.
The recent rise in the stock markets can be attributed to the QE programs by the Central Banks around the world. The interest rate of borrowing from the Feds is down to 0%, and to battle the COVID-19 situation, Governments approved printing of heaps of money to maintain liquidity in the markets. Low output in the economy, unemployment, and the setback due to spending on coronavirus has pushed the economy into a recession. In a low growth environment, the propensity to rise is least in risk assets.
Post halving, there is a strong bullish argument for Bitcoin due to the decrease in the supply. The reduction in supply is expected to shift the price upwards, if the demand remains around the same level. However, apart from miners there is one other large entity that is involved in selling of Bitcoins. Willy Woo, leading on-chain analyst tweeted,
Post this 2020 halvening miners will cease to be the biggest sellers of Bitcoin. It’ll be the dawn of the crypto exchange as the leading seller. The biggest sell pressure on Bitcoin will soon be from exchanges selling their BTC fees collected into fiat.
He had also noted previously that currently miners make up to 60% of the selling pressure in Bitcoin, the rest comes from the exchanges which sell-off their earnings in transaction and trading fees. Hence, post halving the reduction in selling pressure would be considerably less than 50%.
Moreover, given the current economic environment, it is likely that in the event of an accelerated sell-off after the event from the investors as well, the drop could be of massive proportions.
Chart Analysis
In the short-term, looks like Bitcoin continues to be in a bullish trend, as the price seems to be finding support from the bottom of the channel. However, things are looking grim on higher-time frames as the price as the price action seems to be confining to the bears.
In long-term trend, the break-down below two levels of resistance and support is a worrying signal for the bulls as well.
First, is the break-down below the bearish channel Bitcoin price has been following since topping for the year 2019 at $13,880. The reversal from the top in February at $10,575 which coincided with the Xi-pump, was a strong indicator of failure of the bulls. Hence, 10,500 seems to be a strong pivotal point of the bulls.
Moreover, the price also broke below the support for the long-term bullish trend-line (since 2016) on a logarithmic scale. This trend-line marked the bottom during the severe bear trend and accumulation zone around $3150-$4000, later around $6,500 in 2019.
A confirmed break-down finally occurred with the Black Thursday crash around 12-13th March, plunging BTC prices even below the bottom of the descending channel shown above. Nevertheless, we saw a quick recovery above the support from the bear channel.
However, the bulls could only record wicks above the long-term log trend-line which has now flipped from resistance into support. Nevertheless, according to the fractals from the previous event, the bullish outlook might still be intact. Nevertheless, not without a pullback and a consolidation in a range first.
According to this fractal by prominent trader and analyst, Tyler D. Coates the price squeezes in a triangle from the prior bull run into halving. Towards the later half of 2020 he suggest that the price could trade in around the $6000 levels before the next parabolic run.
The productivity of the global economy, the slow-down in investments coupled with bearish trends point towards another significant pullback. The hodlers and investors who refused to sell around $$3,800 to 4,500 are likely to hold on to their Bitcoins through the tough economy. Nevertheless, new injections might have to wait until recovery is made at international levels, and we witness organic growth in the economies.
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