Tuesday market overview
For the last couple of weeks, bitcoin has been trading in a channel between $6,000 and $6,500, a brief spike above and below those levels notwithstanding. Price has found it hard to break out of this zone, despite strong fundamentals and positive news from the likes of Intercontinental Exchange and Bakkt. Against that, there is widespread skepticism among regular traders about the future of bitcoin given its 70% decline this year.
However, this is akin to looking out of the window and inferring long-term climate conditions from a change in the weather. Having tested the $6,000 support several times and held, we are of the opinion that the current price (around $6,400 at the time of writing) represents an excellent entry point. Short-term traders will want to manage risk carefully, since it is conceivable that we will revisit lower levels and, of course, it is not impossible that price will break downwards — this is a market, after all, and uncertainty is built in. It’s also quite possible that we will see another dip down towards support at $6,000 or even $5,800, even if bitcoin doesn’t break those levels.
In fact, this is what the market is betting. Shorts are at their highest in a year (https://uk.tradingview.com/symbols/BTCUSDSHORTS/), indicating the large number of traders who think further falls in price are coming. The ratio of shorts to longs is also close to a high: https://uk.tradingview.com/symbols/spread/BITFINEX:BTCUSDSHORTS/BITFINEX:BTCUSDLONGS/. In short, the market as a whole believes that bitcoin is heading downwards.
What you think the significance of that is depends on what you think of the ‘wisdom of crowds’. The quote goes that the market exists to make fools of as many people as possible. The crowd is usually wrong. Given the volume of shorts, a rise in price will cause a significant short squeeze, as those traders are liquidated and forced to buy back bitcoin, driving the price higher still. Short-term targets are $6,600, $6,800 and $7,000.
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