As Shakespeare once famously said – is $4,000 the bitcoin bottom of 2018 or not, that is the question!
At the time of writing the previous update, in the early days of November, spirits were still fairly high. There was a slight chance that $5,800 was the 2018 bitcoin bottom. In fact, I expected some bullish action – but with a caveat: »The first important resistance is very near, at around $6,600. …The strength of the bulls will be seriously tested and if they fail, there is doom and gloom ahead – the $6,100 support will be hard pressed to hold once more.«
Unfortunately, the $6,600 resistance held ground. Thus, doom and gloom indeed descended upon the market. For the third time in a row, touching the Ichimoku cloud boundary (on the daily time-frame) sent bitcoin into the abyss. Total crypto market cap lost 75 billions already and currently stands at 141 billion USD. As usual, the majority of suffering went to the altcoin market.
It was a short-sellers paradise :)
Daily Heikin Ashi time frame
Heikin Ashi candles are a great and powerful tool to determine the trend of the market. Their structure is somewhat complicated so let’s keep things simple. Only when Heikin Ashi candles start turning green can we start thinking of safely longing bitcoin. Pay attention to the red Doji stars, they are the first harbingers of a possible trend reversal. Currently all the daily candles in the current run are red. Further downside is thus still very much possible.
You can choose the Heikin Ashi candles on Tradingview (further described here), as shown on the picture.
4 hour time frame
As things stand, drama ain’t over yet. The market sentiment is full of fear. Lots of people are capitulating. Also, the bearish flag pattern (seen in the pic above) – usually a continuation pattern – broke downwards some hours ago.
The best the bulls can hope for is that the newly formed double bottom – a bullish pattern – will hold.
A break above the yellow line will mean that the bulls gained the upper hand again and a correction to the upside is likely to happen. All in all, the longer bitcoin manages to preserve the 4K range, the higher the chances are this will happen.
However, we’re still staring into the sub-4K abyss. More on that below.
Why did we stop at $4,300 price level – and where is the next stop?
I used the volume profile tool called visible range and got the levels that you see.
On the right of this weekly chart you can see the visible range indicator. It displays trading activity over a specified time period at specified price levels. I marked the High Volume Nodes, the horizontal peaks of volume around different price levels. The peaks show the price levels at which past consolidation took place. This levels can serve as support or resistance, depending if the price above or below the level.
Currently the lower $4,000 area acts as pretty decent support. The 6,500$ area, on the other hand, seems to be a brutal resistance area – if we somehow manage to climb back up.
Visible range doesn’t only tell us where we can bounce. Where trading activity volume was low, seen as horizontal valleys, the market is much more likely to just cut through that price range. Thus, if we break below the $4,000 area, the next logical support waits around $2,800.
Also of notice is the altcoin market cap. As you can see, this market suffered a 35% drawdown. Considering all the capitulation candles we saw during the week, it is reasonable to think there is a fairy good upside potential on alts. But, yet again, they desperately need the 4K range to hold as the bitcoin bottom. If it doesn’t alts will likely plunge for another 35%.
NVT indicator and the bitcoin bottom
The NVT indicator is an experimental tool to determine the correct value of a an abstract asset such as bitcoin. It helps you detects when overvalued or undervalued. This indicator proved to be very reliable in the past mayor cycles.
“NVT Ratio (Network Value to Transactions Ratio) is similar to the PE Ratio used in equity markets.When Bitcoin`s NVT is high, it indicates that its network valuation is outstripping the value being transmitted on its payment network, this can happen when the network is in high growth and investors are valuing it as a high return investment, or alternatively when the price is in an unsustainable bubble.”
Right now, bitcoin still still seems to be overvalued. Anything in between 30 to 90 is considered the normal NVT range. As long as the brown line – currently at 163 – doesn’t come lower, BTC will remain overvalued.
What to do?
All in all, the market seems to be very excitable these days. For traders, this is the time of maximum opportunity. There is still a very decent downside potential. Further capitulation movements could directly blast the price towards the next support at around $3,000. The $3,600 price point may prove to offer some support. This is where some long-term diagonal trendlines are pointing.
Things don’t look good for bitcoin at the moment. but as I said earlier the longer time we manage to stay above $4,000 the more chances we will get for an upside move. However, even if this bear market continues and brings further blood, a re-test of the previous $5,400 support, turned resistance now, is not out of question and is in fact very likely.
Whatever happens, stay alert and be ready for both scenarios. However, don’t be too trigger-happy. Beware of the fakeouts and wait for conformations. The long chop at $6.5K was a slow way to bleed out people’s bankrolls. The emotionally charged situation at the moment may do this as well, but much much faster.