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Analysis

Chart of the week – Bitcoin (BTC/USD) carnage has reached historical extreme oversold condition

BTCUSD

Chart of the week – Bitcoin (BTC/USD)

Bitcoin (BTC/USD) carnage has reached historical extreme oversold condition

Short-term technical analysis (1 to 3 weeks)

(click to enlarge chart)

(click to enlarge chart)

Time stamped: 19 Jun 2022 at 1:00pm SGT 

Source: CMC Markets & TradingView

  • Cryptocurrencies have lost close to $1.2 trillion in terms of market capitalization in less than 77 days due to a further global liquidity tightening condition triggered by a more hawkish monetary policy stance undertaken by the US central bank, the Fed that in turn has triggered massive amounts of indirect leverage unwinding in the unregulated and opaque DeFi (decentralized finance) ecosystem exuberated by recent two weeks of liquidity problems faced by key players in the DeFi space such as lenders (Celsius Networks & Babel Finance) and crypto trading & venture capital firm (Three Arrows Capital).
  • All these recent leverage unwinding & liquidity constraints occurrences seen in cryptocurrencies space “smelled” in parallel similarity to the over-the-counter derivatives contracts tied to US subprime mortgages that triggered the massive risk off episode in 2008 which in turn created the current negative sentiment feedback loop spiral in cryptocurrencies.
  • Bitcoin (BTC/USD) one of the major cryptocurrency tokens has tumbled by -74% so far from its November 2022 all-time high of 6,900 that lasted 217 days at this time of the writing. Prior significant three bear market cycles were as follow; (December 2017 to March 2020, -80%, 819 days), November 2013 to August 2015, -87%, 630 days) and (June 2011 to November 2011, -94%, 161 days) – refer to above weekly chart in log format.
  • The current 217 days of waterfall decline from its November 2021 all-time high has led BTC/USD now to rest at a critical support zone of 19,100/16,100 defined by a confluence of elements (the former swing high areas of December 2017/January 2018, lower boundary of the major ascending channel in place since August 2015, a cluster of Fibonacci retracement levels).
  • In addition, the steep down movements of BTC/USD have hit a historical oversold condition of 24.69% as indicated by its weekly RSI oscillator coupled with an extreme downside volatility reading of 0.02/0.01 seen in the Bollinger Band Width. Also, the short-term 4-hour RSI oscillator has flashed out a bullish divergence signal at its oversold region.
  • All these observations suggest that BTC/USD may see a short-term snap back rebound to retrace some portions of its steep waterfall decline. Watch the 16,100/14,950 key medium-term pivotal support and a break above 22,950 upside trigger level may unleash a potential short-term rebound towards the 28,000 resistance.
  • On the other hand, a 4-hour close below 14,950 sees the continuation of the impulsive down move sequence towards the next support at 11,700/9,560 in the first step.


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