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

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 21st 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].

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