Chart of the day: Bitcoin Rally

The leading cryptocurrency in terms of market capitalization — bitcoin — continues to suffer serious losses since the middle of this March. However, in recent days, the digital currency has regained some of its positions, having received much-needed support from various fundamental factors.

The chief executive officer of Tesla (NASDAQ:TSLA), Elon Musk, made a lot of noise earlier this year, saying that the electric car manufacturer would accept bitcoins as payment for cars, but then in May said the opposite. And now, it seems, he has changed his mind again.

At an event organized by the Crypto Council for Innovation, Musk hinted the day before that his company was reviewing its policy regarding bitcoin as a means of payment.

At the same event, the head of ARK Investment Management, Katie Wood, supported bitcoin as a means of protection against inflation during a round table, which was also attended by the head of Twitter (NYSE:TWTR) and Square (NYSE:SQ) Jack Dorsey, who also spoke in defense of the cryptocurrency.

In addition, Bloomberg came to the aid of bitcoin, referring to a technical signal as a reason to bet on the growth of the cryptocurrency. The news stream may be favoring bitcoin right now, but we’re betting on a fall. And here’s why…

BTC/USD – daily timeframe BTC/USD – daily timeframe

The BTC/USD pair found support at the January low, namely at the level of $29,000, which we followed, considering it a point of no return. If it breaks, we would start categorically betting on the fall of the digital currency, since there is no airbag under it — the nearest support level is much lower.

Although by the time of writing, bitcoin has risen above the $32,000 mark, we believe that yesterday’s jump is nothing more than a return movement with a repeated check on the strength of the descending triangle. This pattern indicates that sellers are catching up with buyers.

The breakdown of the bottom will serve as a signal that demand has been completely leveled by panicked sellers and shortists. Such a development of events is expected to trigger the triggering of stop-losses on long positions and a new wave of short sales, which will lead to a collapse in prices.

The position of the descending triangle on the supply-demand graph speaks for itself. It is located directly under the “head and shoulders” (H&S) reversal pattern and is pressed down by a “dead cross” formed at the intersection of the 50-day and 200-day moving averages.

The indicator also crossed the 200-day moving average in 100 days, as a result of which a “bearish” pattern was formed: each of the moving averages is below the indicator for a longer period. This shows that the price falls not only within a limited period — the fall rather covers different periods of comparison.

A breakdown down of this triangle, at which the “bearish” formation will be completed, will sweep away the January minimum on its way, and then the $22,000 level will be under the gun.

Both in terms of volume and RSI, there is a clear negative divergence. The relative strength index broke through the short-term uptrend on momentum, originating in May, while turning downwards after rising to the top of the falling channel, and this indicates a downward trend.

Trading Strategies

Conservative traders should wait for a close below $29,000 before trying to open a short position.

Moderate traders can take a risk and open a short position when closing below the psychologically important “round” mark of $30,000, which will confirm that the pattern remains a stronghold of the “bears”.

Aggressive traders can open a short position at their discretion, provided that they are aware of the risks outlined above and have a reasonable trading plan.