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Sharp Sell-Off Below $10k for Bitcoin Followed By Possible Institutional Buying

As bitcoin returns to sub-$10k territory, we analyse what catalysed the sharp sell-off and whether institutional investors are playing a role in recent rises.

Key developments over the past week;

Retail Investors Versus Institutional Investors in the Bitcoin Market

In last week’s analysis, we noted that a return to sub-$10k territory for bitcoin price could materialise in a significant sell-off in price. This phenomenon materialised as price returned below the psychological $10k level with a sharp sell-off occurring bringing bitcoin price to a weekly low of $9,321.

The sell-off resulted in price dropping below its 100-day SMA leading many analysts to anticipate further declines. Over 50% of Twitter users who answered a poll published by the CoinDesk Markets Twitter page on August 29th speculated that bitcoin price will drop to values below $8,900. However, with retail traders typically incorrect in their outlooks, it is interesting to note that despite the majority anticipating further declines, the price recorded an appreciation of roughly 3% over the three following days to finish the week on a stronger note. This indicates the presence of institutional investors betting against the general outlook. It was also noted during the week by Matrixport Senior Vice President Wu Mengxia that there has been a greater prevalence of institutional investors in the OTC market recently.

Bitcoin Price Performance

Bitcoin daily chart with 128 SMA (blue), 100 SMA (red), and 50 SMA (yellow). RSI and MACD graphed below; Source:

As noted in last week’s analysis, the price of bitcoin recorded a strong increase as the week’s trading began. The appreciation resulted in the price forming a weekly high of $10,805.

The subsequent decline and drop below $10k catalyzed a sharp sell-off as Bitcoin returned to sub-$10k territory. The sharp sell-off was likely the result of a lack of buyer liquidity. Four of the seven daily candles between the 19th and the 25th of August traded both above and below the $10k level. However, none of these daily candles closed below with each finding sufficient buying liquidity to close above $10k. However, each drop below progressively diminished the volume of buyers below this level playing directly into the sharp sell-off on the last drop below $10k.

The sell-off brought bitcoin price to a weekly low of $9,321 on the 29th of August. The price rebounded to close the day’s trading at $9,486. The $9,347 price point has now acted as support on three occasions after initially acting as resistance in mid-June. The breakthrough this level as resistance in mid-June was followed by the price increase which brought bitcoin above $10k for the first time in 2019.

One observation worth noting is how bitcoin price is currently interacting with various simple moving average’s (SMA) of its price. The price began the week in a consolidation phase between the 50 SMA and 100 SMA. The drop below the 100 SMA on the 28th of August resulted in many market participants expecting further declines as shown by the Twitter poll which CoinDesk markets held.

On-chain analyst Willy Woo had another outlook. Woo identified the 128 SMA as a more relevant moving average to monitor. Woo held that in a bull market (i.e. prolonged upward trend), the price needs to retrace to this point on multiple times to continue to record price increases.

People familiar with BTC’s historic personality know that the 128d line needs to be touched many times during a bull market to stay grounded. They present good buying opportunities - Willy Woo

Others were not convinced of Woo’s reasoning. Messari analyst Qiao Wang satirically replied:

Hmm dunno about 128d MA. I only buy when the log of 37h EMA squared crosses the upper Bollinger band of the 195d MA .

To the downside of price, the 38.2% retracement level between the December 2018 low and the December 2017 high is a level to monitor as a potential point of buying pressure. For the past four weekly candles, price action has closed within the bounds of the 50% retracement level and the 38.2% retracement level. As noted on the daily chart, $9,347 is another level to monitor as an area of potential buying pressure.

One phenomenon to note on the weekly chart is the continued declines observed in the RSI and MACD. The MACD and RSI are lagging indicators commonly used to gauge momentum. These metrics have been declining for several weeks and are evident in our previous analysis. The fact that these metrics are declining on the longer-term weekly timeframe may give some traders a directional bias for downward movements.

Global Macro Trader Bullish on Wedge

Bitcoin daily bar chart. Source: Twitter
Bitcoin daily bar chart. Source: Twitter

Global macro trader Raoul Pal tweeted about bitcoin during the week. He noted a wedge pattern forming on the daily chart and assigned a high probability of price increases to this pattern. Pal noted that “this looks like the last time to board the rocket ship”.

Trading takeaways;

While we remain optimistic on bitcoin’s longer-term room for extraordinary price appreciation, which could also be referred to as rocket ship potential, our analysis of recent price action leads us to assign a greater probability of depreciation or consolidation in the near-term as opposed to appreciation. Bitcoin’s sharp sell-off below the psychological $10k leads us to speculate that this level will now act as an area of selling pressure. The continued decline of longer-term momentum indicators may also lead the majority traders to have a downward directional bias. Given these observations, we are assigning greater odds of depreciation of consolidation over the next week.

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