A long-term technical line, which served as strong price resistance four years ago, is capping the upside in bitcoin’s (BTC) price.
That line, the 50-week moving average (currently at $5,477) was breached earlier this week. The breakout, however, was short-lived with prices falling more than 5.5 percent to hit a low of $4,991 yesterday, possibly due to a controversy involving crypto exchange Bitfinex and the affiliated stablecoin issuer Tether.
As reported by CoinDesk, New York’s attorney general alleged that Bitfinex secretly used funds from Tether to make up for an $850 million loss of client and corporate funds. The news renewed concerns regarding the legitimacy of the stablecoin widely used to fund bitcoin purchases, sending both the crypto market leader and tether lower against the dollar.
That said, the short-term technical charts had warned of a price pullback prior to the attorney general’s announcement.
Bitcoin’s failure to hold above the 50-week MA could be a cause for concern for the bulls, as a similar rejection at the crucial average had ended up killing the nascent bull market in July 2015.
Daily chart: 50-week MA rejections
Back in 2015 (above right), bitcoin violated the bearish lower high of $297 (March high) in the first week of July, confirming a bearish-to-bullish trend change. Despite the bullish reversal, BTC failed to clear the descending (bearish) 50-week MA, then located at $312.
That failure proved costly, with BTC erasing the entire rally from $220 to $317 seen in five weeks to July 12. Further, the average resistance was finally breached in October after it had bottomed out (shed bearish).
Hence, the latest rejection at the 50-week MA (above left) could prove to be a major development – espcially as the average is reporting a bearish slope similar to the one seen in July 2015.
With bitcoin’s drop to $5,000, the bearish divergence of the relative strength index (RSI) looks more defined (proper lower high on RSI) than it did 24 hours ago. Further, the price has found acceptance above the 5- and 10-day MAs, which have shed bullish bias.
So, the ascending 50-day MA, currently at $4,572, may come into play over the next week or so.
The short-term bearish view, however, would be invalidated, and prices would likely rise back above $5,600, if the 30-day MA at $4,998 again serves as strong support. That average reversed pullbacks throughout March.
As of writing, BTC is trading at $5,170 on Bitstamp, representing a 3.13 percent drop on a 24-hour basis.