A surge of volume this afternoon sent Bitcoin tumbling more than $500, about 5%, to $9,719, it’s lowest price this month. Price continued to founder afterward too, slipping to $9,673 late Wednesday, according to data compiled by Coindesk (their 24-hour price chart is included here). Is this the breakout from the symmetrical triangle I predicted earlier this week?
To recap my earlier column, Bitcoin had been trading in a narrower and narrower trading range since late June forming a technical pattern known as a symmetrical triangle. It’s essentially competing trend lines, one showing lower highs creating a downward trendline, the other line upward on higher lows. Symmetrical triangles almost always break out either upward or downward around this stage of their formation. While there was a slight statistical advantage to breaking higher, this could be that expected breakout, to the downside.
The argument in favor that is the volume of trading 73,805 bitcoin the past 24 hours, according to data.bitcointy.org, is the largest day in about two weeks, with 30,014 of that traded in the hour ending 18:00 UTC (2pm Eastern U.S.), right when prices plunged. Volume accompanies legitimate breakouts of triangles, as a rule of thumb.
What could be the culprit besides a profit-taking whale? August Bitcoin futures settle at the end of trading London time Friday and someone could be looking to push that settlement price to get their futures bets in the black. Futures are one of the few vehicles for Bitcoin bears to play in crypto because you can’t effectively short Bitcoin (or many other things) without futures. It’s not a coincidence Bitcoin tumbled from its all-time high after its CME futures started trading in December 2017. Before then if you didn’t believe in crypto, you’re only option was to sit on the sidelines.
But today’s plunge isn’t necessarily a critical blow. It could be a rope-a-dope to shake out some traders and buy cheaper. After all, I’m not the only one who studies chart patterns – plenty of big traders do too, especially in Bitcoin which isn’t saddled with additional complexities you see in equities created by index funds and large mainstream investment fund buying. It’s very common in other assets, futures especially, for big traders to force a move to trigger sell-stops in a contrarian method to build a stronger base for a bull move. In short, there’s more than one possible explanation right now.
So if you’re a Bitcoin bear, what do you want to see in coming days? Ideally better-than-recent average volume to the downside. That will confirm the move technically and thereby set in motion future capitulation. Bulls? It’s crucial to see buying come in, ideally Thursday and Friday. Plenty of trading studies show that round numbers are psychologically important even though they’re meaningless otherwise. Recapturing that $10,000 mark is important for that reason. Getting there with decent volume will be much better than a light number of Bitcoin bought to push the price higher. If that happens, then it’d be very bullish to push through the old triangle to the top, around $11,000. My earlier column said bulls and bears were largely in equilibrium. At the least, today’s move says that’s gone, and welcomes volatility back into crypto trading.