Short-term bearish sentiment closes on Bitcoin
Does Bitcoin have any steam left after the recent climbs?
Bitcoin pulled off a golden cross a couple of weeks ago, wherein the 50-day and 200-day moving average (MA) cross each other in a complex yoga manoeuvre that's thought to predict big rises in the future. It quickly turned out to be a prescient indicator, and since then it's continued tracking the same way.
A look at how these moving averages have flown around Bitcoin since the peaks of 2017 puts things in perspective quite nicely.
Disclaimer: This graph was selected for its aesthetic rather than its educational value
By looking at the 50-day moving average (mustard) compared to the 200-day moving average (cyan) and seeing how they reflect Bitcoin prices (navy), you get a nice, clear indication of which price movements are in keeping with Bitcoin's longer-term trends and which are more anomalous.
That big deviation between the 50- and 200-day MA in late 2017-early 2018, for example, shows just how disproportionately sudden and sharp that rise was. It would have been a great sign that the bubble was about to burst, except it only really became clear after the bubble had already burst.
Then they settled into a downwards routine throughout the rest of 2018, and the similar tracking across both reflects the relative steadiness of the downward creep, even as prices went up and down. The next big sweep was in December 2018 when another plunge took the remaining breath from the markets.
The 50-day MA then gracefully touched the apparent bottom and curved back upwards. With the view given by this graph, you can really see why people construed it as a sign that the bottom was in. The golden cross is where the 50-day MA moves back up past the 200-day MA. The last time it did that was 2015.
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Is Bitcoin ready to rise?
But not everyone is so bullish, although the recent rises have brought some activity back to the markets, including a tilt to the bearish.
Disclaimer: This graph was selected for its aesthetic rather than its educational value
The above chart shows outstanding Bitcoin shorts (crimson) and longs (lime) on Bitfinex with Bitcoin prices in the middle and how they've changed since about 15 April.
The first big change came on 19 April. It was a sudden rise in shorts, which came in the absence of much news or price movement. The pessimism grew from then, and the Bitfinex incident is clearly visible on 25 April as a sudden rise in shorts and drop in prices. You can also see how the Bitcoin prices on Coinbase (navy) separate from the Bitcoin prices on Bitfinex (the colour of a storm-tossed ocean on a spring day).
The good news is that sentiment isn't always the best indicator, and the outstanding shorts may present an opportunity for a short squeeze in the event of a sudden movement. It's also worth noting that given the enormous Bitcoin premiums currently found on Bitfinex, a short position there might actually be an optimistic bet on things returning to normal.
The bad news is that sentiment is clearly not in favour of a continued rise, and this particular upwards turn may be almost out of steam – for now. The recent rise burnt off a lot of Bitfinex short positions, but these started trending back upwards soon after and there's little corresponding interest in going long with Bitcoin futures right now.
Sentiment clearly seems to favour a drop, and it seems increasingly likely that traders will be disappointed with what they find in Bitfinex's shorts.
Disclosure: The author holds BTC, BNB and ATOM at the time of writing.
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