Glaring Downside Risks Make Bitcoin Correction Likely Despite “Buy the Dip” Sentiment
- Bitcoin crawled back above $7,000 this Thursday trade but failed to confirm a bullish breakout.
- The cryptocurrency rebounded as US Stocks and Oil broke their two-day losing streak.
- Analysts are concerned that the markets are overly optimistic.
Bitcoin jumped back above the key support/resistance level of $7,000 on “buying the dip” sentiment Thursday but failed to turn the rebound into a full-fledged bullish breakout.
The benchmark cryptocurrency surged 4.95 percent to 7,191.99 after dropping by more than $500 at the start of this week. The move uphill came in sync with a similar upside recovery in the US stocks and oil market. The Dow Jones Industrial Average gained 2 percent 23475.82 while Brent crude finished 5.4 percent higher at $20.37 a barrel.
The parallel moves once again proved a growing positive correlation between Bitcoin and traditional equities. The otherwise different assets fell together owing to the economic crisis caused by the novel Coronavirus. Meanwhile, they both recovered in tandem after central banks introduced stimulus programs to safeguard their economies.
Oil’s Collapse is a Warning Sign
Karen Ward, the chief market strategist at JPMorgan Asset Management, noted that investors are turning very optimistic about the stock market recovery. But this may be unwarranted, as these rallies come on the back of central bank support rather than concrete fundamentals.
Meanwhile, the crashing of US oil prices below zero is an alarm, showing that how uncertain markets, including bitcoin, can be as more than half of the world goes into lockdown to slow the speed of the Coronavirus pandemic. The corporate earnings coming out of the US are poor and therefore do not justify the gains.
“The second quarter is going to be awful for earnings,” Ward told FT. “We think the market is still a little bit optimistic […] That’s the thing that concerns me.”
The gloomy outlook for stocks serves as a reminder to bitcoin bulls about a similar reaction in the cryptocurrency market. Bitcoin’s exception crash to $3,800 in March showed a clear sign of mass liquidation by investors who wanted to use their crypto profits to cover their losses elsewhere. Even Gold wasn’t spared.
“The bulls now must sustain the rally at an equal or greater pace in the short-term or the bears might take back some serious ground,” noted Nicholas Pelecanos, head of trading NEM Ventures, before the price slipped below $7,000 on Monday.
Bitcoin’s $9,000 Target
As covered previously, the bitcoin price could still rise towards $9,000, providing it manages to break above a crucial resistance area illustrated by a red bar in the chart below.
The $7,200-7,4000 is serving as bitcoin’s ceiling range now. A break above it could lead traders to make moderately risky upside calls while eyeing $9,000 as their primary target.
At the same time, two bearish indicators – Rising Wedge and Double Top – are indicating deeper pullbacks, with bearish targets situated within the $5,300-5,691 range.
Featured image from Unsplash
Published at Thu, 23 Apr 2020 04:15:05 +0000 Glaring Downside Risks Make Bitcoin Correction Likely Despite “Buy the Dip” Sentiment