Warning Signs For Bitcoin

Bitcoin's Short-term Technicals Raise Concern

Jan 17, 2024

IN TODAY’S REPORT

What we cover: TECHNICAL VIEW Edition. Bitcoin and its 50ma. Issues with OBV. Misplaced concern?

TODAY’S TECHNICAL VIEW

Benefitting from a post-spot Bitcoin ETF approval narrative switch, Ethereum (ETHUSD) holds up beautifully on a technical basis right alongside TOTAL3, an imperfect but decent guide to altcoin performance.

But the major technical question for crypto right now is whether Bitcoin can hold above its rising 50-day moving average (50ma). While many traders prefer overly complex indicators, elaborate alternative wave counts, or the potential realization of a Gartley pattern, the 50-day simple moving average typically provides technical traders with a highly useful proxy for an up trendline. Said another way, the 50ma often mimics an up trendline for an established uptrend such as we currently have in Bitcoin.

BITCOIN INDEX (BTCUSD). Daily Chart with On Balance Volume (OBV) Indicator and 50-Day Moving Average (50ma).

While Bitcoin continues to hold the area of its rising 50ma, there are a few technical characteristics which should raise some eyebrows. First, the high volume bearish candles on January 11th and 12th show massive volume as Bitcoin declined, especially on the 12th. Healthy pullbacks usually display lighter than average volume bars, but we have the opposite in Bitcoin — our first concern.

Second, as Bitcoin surged to its recent intraday high of 48,975, its On Balance Volume indicator traced a lower high forming a bearish divergence with price — another negative short-term concern.

Lastly, Bitcoin’s OBV has lost its own 50-day moving average, now closing clearly below the average, potentially foreshadowing the same for Bitcoin itself.

For those under-exposed to the king crypto, potential further weakness on the heels of these technical warning signs may be welcome. For those newly invested, however, the possibility of a deeper Bitcoin pullback may come as a rude awakening, especially for those now “renting” Bitcoin through shares of any one of the newly minted spot ETFs. While not shown, a correction to the 200-day moving average would see Bitcoin fall to near 33,000, insulting true Bitcoin owners and ETF renters alike and most certainly dragging down ETH to some degree in the process.

While we’d love for these short-term warning signs to amount to nothing but misplaced concern, you’ve been notified. We may get a chance to see Bitcoin below $40k very soon.

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-DB

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