Bitcoin drifts lower, yet bounce could be impending

Bitcoin is showing subtle signs of a potential shift in sentiment, with a possible rebound looking like a distinct possibility.

Bitcoin Source: Bloomberg

Bitcoin has been in the background for many, with the huge gains of 2017 turning into a nightmare for HODLers in 2018. However, with the price of bitcoin dropping close to the $3000 mark, many are tentatively investing into bitcoin in the hope that we could see major gains in the coming years. $3000 had been a widely heralded level that we could see bitcoin bottom out at, and whilst we have seen a rebound play out from that area in December, it has hardly provided us with the resounding resurgence some would hope could play out.

That being said, one thing has changed since the price of bitcoin fell into the $3126 low. If we look at much of the recent declines, the downside moves have typically been sharp, with any resurgence taking the form of a gradual and slow rally. Sell-offs have been steep, whilst recoveries have been slow and with less conviction. However, this appears to have changed when looking at the most recent price action, with the sharp rebound in late-December giving way to a gradual drift lower. This alludes to a potential retracement in play here, with another leg higher looking likely despite the current period of weakness.

Certainly, a fall below $3126 would signal that such a bounce is not coming. However, given the size of the sell-off in late-November, any upcoming upside need not be a complete reversal of the downtrend, but instead could provide substantial upside. Thus, if looking for a retracement into the 61.8% retracement, we could see a 48% gain versus a 14% loss (if placing stop below the $3126 swing low). In terms of risk-to-reward, we are looking at better than 3-1 trade into the 61.8% level, with over 4-1 for the 76.4% level.

Alternately, for greater confidence, look for a break through the $4105 swing high to gain a confirmation signal that an upside move is impending.

Bitcoin chart

Bitcoin chart

While many have been calling for $3000 to mark the bottom for many months now, we have seen precious few signs to tell us that the rout is over. However, with a subtle change in the candles involved in each up and down move, there is a good chance that we could see this current period of weakness as a buying opportunity.

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