Will bullish sentiment on cryptocurrencies continue?
IN recent months, there has been a surge of interest in cryptocurrencies (crypto). With banks and institutions slowly embracing it, and Coinbase’s listing on the Nasdaq stock exchange, it can be said that crypto volumes traded will likely continue to see increased growth. Riding this wave of euphoria, the “original” cryptocurrency Bitcoin, has benefitted the most. Bitcoin saw an exponential surge in price from US$29,000 in Jan 1, 2021 to the all-time-high of US$65,000 (R1) in mid-April 2021.
The flurry of activity has not gone unnoticed by governments and regulators. In March 2021, India has proposed a law to ban its citizens from trading and holding such digital assets. The Central Bank of the Republic of Turkey (CBRT) announced that it plans to ban the use of cryptos for payments from the end of April 2021. It cited that besides crypto’s market value being “excessively volatile”, digital wallets can be stolen and used unlawfully, and that transactions are irrevocable and fuels money laundering.
Most recently, rumours are swirling that the US Treasury might be planning to accuse a number of financial institutions of using these digital assets to launder money. This announcement caused the crypto markets to react negatively and trade in the red on April 18, 2021. Bitcoin traded US$8,700 lower, dropping from US$60,000 to US$51,300. This move is currently the single largest decline in Bitcoin’s price for 2021. Ethereum, the second-largest cryptocurrency by market capitalisation, also suffered from a decline, dipping US$300 from US$2,300 to US$2,000.
Moving on to the technical chart, we can see that Bitcoin has formed a consecutive series of lower highs before its sharp decline to US$51,300. At the current state of price action, there is a potential for a fourth lower high to be formed just below the US$58,000 price level. Beyond that, a strong support can be seen at US$50,000, where it was last traded during March 25, 2021. A Fibonacci retracement drawn on the chart shows price is currently trading below the 61.8 per cent Fibonacci retracement level of US$59,200.
At the point of writing, it is currently trading in range between the 23.6 per cent (US$53,800) and 50 per cent (US$57,500) of the Fibonacci retracement level. A break either higher or lower would provide more clarity on the price action.