Trading Bitcoin’s latest surge

Weekly bear trend line still holds as China’s blockchain embrace pushes short-term technicals into more bullish territory.

The latest in Bitcoin:

The Chinese embrace of blockchain technology was sparked by comments from its president Xi saying the country should 'seize the opportunity' that blockchain technology offers, and reinforced by the passage of a cryptography law that outlines a new regulatory framework set to go into effect at the start of next year.

And while that may set the stage for an online digital currency of their own in China, as well as the fact that being in favor of the underlying blockchain technology doesn’t necessarily translate into being in favor of the cryptocurrencies currently available, the hype has sent Bitcoin surging higher and briefly breaching the $10,000 mark.

A closer look into the way the cryptocurrency market works, and those gains could easily be at risk of a slow reversal back down. A part of it is due to lower liquidity levels in general for cryptocurrencies than that of traditional asset classes, especially above market prices as sell orders carry unlimited risk in the event of a surge higher compared to buyers whose risk is only limited to the total value of the cryptocurrency.

That means volatility to the upside has generally been harsher and making those gains stick usually more difficult, leaving crypto gains at risk of slower retracement back down (given that buy liquidity below market price is much more sizeable and has a tendency to absorb a shock more easily).

Bitcoin Technical analysis, overview, strategies, and levels

Putting it all together, and the current technical overview is volatile (to say the least) until the dust settles, though its long-term weekly bear trend line is still holding. That means conformist technical overview strategies involve breakouts off the main 1st Resistance and Support levels for limited profit-taking anticipating that any price moves could be at risk of significant reversal.

Contrarian reversal strategies can be deployed but only after a significant reversal waiting for the levels to be breached by a healthy margin. This is especially the case for cryptocurrencies where it only takes one large buyer (or seller) to force the market in either direction in the short-term to breach pivot points, and given Bitcoin represents over 60% of the crypto market, it’s the ideal market to initiate such moves.

IG client and CoT sentiment for Bitcoin

Lastly, the latest sentiment figures show retail bias remaining at an extreme long 82% with more gains needed given where the bulk of those longs have been initiated at combined with the usual HODL (Hold On for Dear Life) strategy held amongst the crypto community anticipating further gains. As for the CFTC’s latest Commitment of Traders (CoT) report, the bias remains unchanged at a majority short 60% (a bias they’ve held for most of this year as seen in the chart below) with a reduction in Bitcoin long positions by 332 lots differing little from the reduction in short positions by 428 lots.

Bitcoin weekly chart with institutional sentiment (as % long)

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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