Where to From Here?
Bitcoin appears to have broken the established uptrend, with a clear break and multiple closes below the outlined trend line (red line).
It is my belief that a primary driver of the selloff in bitcoin was due to the sharp selloff in the equity markets, and the need for liquidity for margin calls, as well as risk re-balancing in portfolios.
What appears to have happened, is the uptrend that was establishing itself in Bitcoin has stalled due to the market shocks and the uncertainty surrounding the Coronavirus.
It is worth mentioning that fundamentally nothing has changed within the space and the use case for Bitcoin and indeed the altcoin market is as strong as ever.
What this selloff does indicate however, is that the bigger players, the institutions still just view Bitcoin as a high risk speculative play, which represents risk that they would prefer not to have with the current economic backdrop.
Central Banks to the Rescue
Looking on the macro side of things, the Coronavirus and the broad market impact being felt is actually very bullish for Bitcoin, as central banks around the globe begin to fire up their printing presses in an attempt to stave off the deflationary effect that quarantine measures will have on their respective economies.
Broadly speaking, i believe that Bitcoin could retest the prior lows, particularly if stocks suffer another sharp drop, although i believe that this is more of a speed bump rather than a complete derailment for Bitcoin.
Technical Outlook:
On the technical outlook, Bitcoin is certainly exhibiting signs of a near-term oversold condition, with a move that has taken Bitcoin to the bottom of the 10x Keltner channel, this also lends credence to the notion that institutions have exited a large portion of their holdings.
This area has also acted as a strong level of support in the past, signaling the 2018 market bottom, i would look for a bounce from these levels, to at least the 9ema, currently around the $6,500 USD mark, at this point i would expect to see another wave of sellers enter the market.
If we fail to bounce and begin to consolidate at these levels, this may be an indicator that most of the sellers have already exited their positions, or were stopped out of them in the 50% drop. It may also be a sign that there are simply not enough buyers willing to step in cause a price increase.
The very high relative volume may also suggest that most people did not voluntarily exit, but rather were stopped out, this may have been due to close below the underlying trendline, this triggered sell orders, the price then was in free-fall until it hit booked buy orders at the next level of support.
Conclusion:
If you were bullish on Bitcoin at $14,000 USD, $20,000 USD or at any level in between, then a fall to $5,000 USD should be considered a gift, rather than a curse. Because nothing has changed within the space, the use case is still as applicable as ever, the only issue is that a short-term rush for liquidity has done a number on the price.
Sources:
Australia:
https://www.abc.net.au/news/2020-03-13/coronavirus-stimulus-package-lessons-from-gfc/12052270
United States:
https://markets.businessinsider.com/news/stocks/fed-repo-trillions-added-to-fight-coronavirus-economic-risk-recession-2020-3-1028991278
Hong Kong:
https://www.cato.org/blog/handouts-helicopters-hong-kong-dollars-hogwash
Italy:
https://www.bbc.com/news/business-51814481
