Bitcoin Analysis: BTC’s behaviour is normal, watch for bearish RSI divergence

Omkar Godbole FXStreet Contributor

Bitcoin [BTC] has jumped to a fresh record high of $3545 this Friday following Thursday’s bullish inside day candle. BTC’s rival Bitcoin Cash [BCC] has tanked as some investors who got access to exchanges have dumped their coins. The sell-off in the newly created clone is a sort of victory for the original crypto currency.

Heightened curiosity feeds into the rally

BTC has been on a tear of late… and that has increased curiosity among investors about the virtual currency, which is being labelled as a 21^st century gold. Investment banks like Goldman Sachs are taking more interest in the Bitcoin of late. More and more investors are becoming familiar with the digital currency.

However, it is all hype. Comparisons with gold are premature. What made gold a global safe haven asset? - Perception… that gold never loses its value. The perception has been created due to persistent demand over the last few hundred years from the two Asian giants - India and China/South East Asia… If Bitcoin has to rival gold, it has to gain widespread acceptance in India/China and young nations. It’s a long way to go.

For now, it is the curiosity and the hype that is feeding into the market and pushing the prices to record highs.

Bitcoin's behaviour is normal, premature to call it a bubble

Sceptics say the Cryptocurrency bubble could the worst in the modern history. They say the current rally in Bitcoin has all the elements of a bubble that has yet to turn into a mania before it bursts… I beg to differ.

The high volatility, big spikes and sudden price crashes are normal in a nascent market. One cannot expect a toddler to behave like a 50-year old person. On similar lines, Bitcoin rally could be irrational, based on hype, but the market is still in a nascent stage and thus expecting it behave like gold or other matured markets is irrational.

Most experts compare Bitcoin with gold and conclude the virtual currency is a nothing more than an illusion. However, I believe one needs to draw parallels between Bitcoin behaviour today and the price action in gold a thousand years ago [when gold was a toddler]

The hype led rallies do deflate. It would have happened with gold as well thousand years back. But that was not the end of the world for gold. On similar lines, Bitcoin’s hype-led rally could deflate, but that won’t be an end of the world for cryptos.

Thus, it is premature to call it a bubble. If the virtual currency penetrates deep into South East Asia and other young nations, it could easily gain credibility and challenge gold. No one can say for sure whether it will penetrate the key regions. So it is better to avoid taking extreme views - calling it a Holy Grail or once in a lift time bubble.

Technicals - Volume continues to disappoint

Daily chart

The chart continues to show a bearish volume divergence. Hence, caution is advised as we may be in for a sudden pull back over the weekend, although the dips below 10-DMA could find takers, given the average is still sloping upwards.
However, a pullback triggered by a bearish price RSI divergence on the 4-hour chart could go much deeper… possibly towards $3000 levels.

4-Hour chart - Potential bearish RSI divergence

Watch out for a lower high on the RSI as it would confirm a bearish divergence and open doors for a strong pull back towards $3000 levels.
On the higher side, a major hurdle is seen directly at $3817 [100% Fib extension levels].

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.