Could Bitcoins 6Month Downtrend Be Coming to an End

Could Bitcoin’s 6-Month Downtrend Be Coming to an End?

While it pales in comparison to previous bear markets (prominently including 2018’s 85% drop from nearly $20,000 to a low of $3,200), there’s no denying that sellers have been in control of bitcoin over the last six months. Since peaking just below $14,000 in late June, bitcoin has put in a consistent series of lower highs and lower lows, culminating (so far) with the mid-December low under $6,500.

Ho-hum, just another run-of-the-mill 50% crash in the world’s oldest cryptocurrency.

As any diehard bitcoin “hodler” will tell you though, developers continue to improve the underlying bitcoin protocol regardless of price movements. While the much-anticipated bitcoin ETF has yet to garner regulatory approval in the US, a series of other upgrades have come online in recent years, including the faster, cheaper “lightning network” layer-2 solution, as well as the space-saving Segregated Witness (SegWit) proposal. Looking ahead, developments like more efficient Schnorr signatures and privacy-enhancing Taproot could be future catalysts for improved functionality.

At the end of the day though, what traders are most interested in are the price movements, and from that perspective, there are some clear technical signs that bitcoin’s recent downtrend may be coming to an end.

Quietly, BTC/USD has rallied more than 20% in the past three weeks and is probing its highest levels since late November. More to the point, this rally has come in the context of a classic inverted head-and-shoulders pattern. For the uninitiated, this pattern shows a transition from a textbook downtrend (lower highs and lower lows) to an uptrend (higher highs and higher lows) and is often seen at significant bottoms in the market:

Source: TradingView, GAIN Capital. Note that this is a logarithmic chart.

The fact that both the RSI and MACD indicators have been trending higher since late November (despite the marginal “lower low” in price) confirms that the selling pressure is drying up, a necessary precursor to the start of a new uptrend.

That said, bulls are far from “out of the woods” as of writing. Bitcoin is currently testing its 100-day moving average and remains within the bearish channel off its June peak. A confirmed break above this resistance zone in the 7900-8200 area is needed to confirm a shift in the medium-term downtrend.

Bulls can take solace that at least, after six-month period of frustration and despair, there are some proverbial “green shoots” at the start of 2020.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.