Technical analysis: Bitfinex scandal reinvigorates bear market as Bitcoin loses momentum

As the bullish month of April comes to a dramatic close, the latest Bitfinex and Tether scandal seems to be acting as a catalyst for further downside price-action in the cryptocurrency markets.

While Bitcoin has rallied 25 percent this April, those gains are in jeopardy of fading away as fearful sentiment slowly returns to the crypto space.

The entire cryptocurrency market cap fell by eight billion dollars in light of the New York Attorney General Office’s report, which alleges that $800 million of Bitfinex’s client’s funds have been “lost” or “seized.”

Since then Bitcoin has consolidated at around $5,150, with a test of the $5,350 level of resistance seeming likely over the coming days.

The 200 exponential moving average (EMA) on the three-hour chart is currently being utilised as support, however Bitcoin could re-test the 200 and 55 EMAs on the daily chart, which is currently resting at the $4,750 level.

Bear market rears its ugly head as downside targets emerge

While many have suggested that the cryptocurrency bear market is over, the recent rejection in price from $5,650 unveils an entirely different picture.

If Bitcoin can somehow steady itself following this weekend’s wobble, the $5,900 level will be a tremendous hurdle to bypass considering how it was such a staunch level of support for more than a year.

What’s more likely is a move to the downside, with $4,970, $4,750 and $4,200 emerging as potential targets.

If price cascades down to $4,200, it will be interesting to see how that level acts as support considering it was a seemingly impenetrable level of resistance between November and March.

A significant enough decline in price below $4,200 could be the beginning of a new phase of this bear market, with $2,800, $1,800 and $1,150 being touted as key levels to look out for in what would be a capitulation low.

Similarities to the 2014 bear market

Market cycles have a habit of playing out in the cryptocurrency space. The 2017 bull-run has eerie similarities to the rise to $1,150 in 2013, both of which were the precursor to a set of painful bear markets.

The bear market in 2014, which came to a crippling crescendo following the Mt Gox exchange hack, lasted for two years, with several analysts predicting that the cryptocurrency bubble had popped.

However, the emergence of coins like Ethereum and the ICO boom saw life, and unsustainable hype, return to cryptocurrency space.

One glaring similarity from the historic bear market to the current bear market is the golden cross scenario that played out in July 2015.

At the time, it was a reversal signal that saw price rally by 30 percent before a period of consolidating. Unfortunately, the rally failed to sustain momentum. Instead, price was rejected at $318 with it subsequently falling 37 percent all the way to $197.

This is why there is concerns over whether the most recent golden cross, which happened on the daily chart this month, is substantial enough to trigger a bull market reversal.

The golden cross this month saw the 200 EMA fall beneath the 22 and 55 EMAs for the first time since May 2018, suggesting that short-term momentum was on the up.

Bitcoin, like in 2015, rallied 30 percent following the golden cross. If what follows is a 37 percent decline, Bitcoin will fall to yearly lows of $3,150.

Fourth quarter looks promising

Q4 of 2019 will mark two years since the bull market in 2017 concluded, it is also the release date for a number of crucial fundamental cryptocurrency products.

The first of which is the potential of a Bitcoin ETF, with the Securities and Exchange Commission (SEC) having until December to make a decision on whether to approve VanEck’s proposal.

This would not only add legitimacy to the cryptocurrency ecosystem, it could also attract institutional investment which may be on the sidelines due to the unregulated nature of digital assets.

Secondly, The Intercontinental Exchange (ICE) will be launching Bitcoin Futures through their Bakkt platform in December. This will improve liquidity and potentially open the floodgates to traders and accredited investors in the US.

Furthermore, by the end of 2019 the remnants of hype that remain from the previous bull market will hopefully have faded away.

In order for a bull market to come into fruition, projects must rally based on merits and not on hype. Bitcoin must de-couple from altcoins, which could become a viable possibility in light of the emergence of Security Token Offerings, which offer a regulated approach to capital raising.

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