Most financial markets have been impacted by the widespread transmission of coronavirus including the cryptocurrency market. The following analysis takes a data-driven and technical approach to explore how Bitcoin has reacted to this epidemic. This analysis will also dig into where BTC could be heading next.
Coronavirus Sparks Market Panic
In a recent blog post, IntoTheBlock described the last couple of weeks as “terrifying.”
The machine learning and statistical modeling firm affirmed that the spread of the coronavirus or COVID-19 injected fear across all the major global economies consequently affecting the cryptocurrency market.
Since Feb. 13, $73.3 billion have been wiped off the total cryptocurrency market capitalization. The substantial outflow of capital caused Bitcoin to drop by nearly 20%. The flagship cryptocurrency went from trading at around $10,500 to recently hitting a low of $8,455.
Similarly, multiple on-chain metrics dropped significantly within the same time span, according to IntoTheBlock.
The number of transactions with a dollar value greater than $100,000, for instance, plunged nearly 35% to 5,300 transactions on Mar. 1. Subsequently, the daily average volume in USD of large on-chain transactions by institutional players plummeted to $3.56 billion.
Bitcoin derivatives were also affected during the recent market downturn. Open Interest for perpetual swaps, especially, went as low as $1.83 billion on Mar. 4 after enjoying an outstanding $2.26 billion.
The considerable decrease in open interest, which is defined as the total amount of outstanding investor positions, could be an indication that an important number of market participants closed their open positions, explained IntoTheBlock.
“Volumes have collapsed since the global markets panic started. This has nothing to do with manipulation. Not about margin calls either, would have seen volumes spike if so (think liquidations). Traders likely relocated capital to other asset classes or moved to cash and reduced risk during times of extraordinary uncertainty,” said Krüger.
The important number of investors exiting the market can also be seen in network activity. Indeed, the percentage of addresses with a balance that had a transaction fell to 1.42% after reaching a peak of 1.88% on Feb. 11.
Bitcoin Bounces Off Strong Support
Despite the nosedive seen across Bitcoin’s price and on-chain metrics, IntoTheBlock’s In/Out of the Money (IOM) indicator reveals that over 725,000 addresses holding more than 500,000 BTC at an average price of $8,440 were able to prevent this crypto from a steeper decline.
This support barrier allowed the flagship cryptocurrency to rebound, which triggered an increase in the buying pressure behind it. The IOM shows that over 2.24 million addresses bought more than 1.7 million BTC between $8,570 and $9,115.
Now, this trading range could provide significant support in the event of a correction with the $8,720 area serving as the strongest hurdle.
Derivative trader Sawcruhteez maintains that the recent price action allowed Bitcoin to develop a Wyckoff Accumulation pattern on its 4-hour chart. The analyst suggests that BTC could soon pull back to retest the $8,950 level before it breaks out.
Such a bearish impulse could present a strong buying opportunity for sidelined investors who can place their stop-loss orders just under the $8,720 support level, affirmed Sawcruhteez.
Failing to hold above the $8,720 support area, however, could invalidate this bullish pattern.
It is worth noting that from a long-term perspective, Bitcoin is contained within a no-trade zone.
This range is defined by its 200 and 50-day moving averages, which are serving as support and resistance, respectively. Trading within this area poses a high level of risk due to the inability to determine where BTC is heading next regardless of the bullish outlook presented by Sawcruhteez.
Therefore, the bullish trade could be confirmed following a spike in demand that allows Bitcoin to have a daily candlestick close above its 50-day moving average. The upswing may ignite FOMO (fear-of-missing-out) among market participants pushing the price of the pioneer cryptocurrency further up.
The next significant barrier that could threaten BTC’s uptrend sits at $10,490. Breaking above it, however, could push its price up to somewhere between $11,500 and $13,000.
Nevertheless, a sudden drop to the 200-day moving average would spell danger for Bitcoin. If a drop to this level encourages the 1.52 million addresses sitting in this area to sell the 1.15 million BTC they hold, this could be catastrophic.
If this happens, the flagship cryptocurrency could take an 8% or even a 16% nosedive to try to find support at the 61.8% or 78.6% Fibonacci retracement levels.
These support levels sit at $8,000 and $7,330, respectively.
Investors Remain Fearful
Although the spread of coronavirus continues with over 93,000 recorded cases and over 3,000 deaths around the world, Japan’s largest drugmaker is working to develop a treatment.
This may help alleviate the state of commotion in the markets, but investors seem aware that it may take up to 18 months for an effective coronavirus treatment to be available.
Due to this fact, it appears that market participants fear what could happen to Bitcoin’s price if the epidemic spreads even further, according to the Crypto Fear and Greed Index (CFGI). This fundamental indicator has been recording high levels of fear in the cryptocurrency market over the last few weeks and is currently at a value of 39 (fear).
Nonetheless, fear can be perceived as a positive sign if one believes the wisdom of the crowd is usually wrong.
The last time the CFGI was this low, for instance, was on Jan. 24 leading to a 27% rally that took Bitcoin to nearly $10,500. Now, traders could wait for confirmation of a break of support or resistance before opening a short or long position.
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