BTC/USD: Bitcoin Approaches All Time Highs

BTC/USD is currently trading at 1158.99 $ on the Bitstamp exchange, up around 2.50% on the day.  

No doubt about it, bitcoin has been on a tear to the upside recently on what is becoming renewed interest from the broader public, likely catalyzed by a global macroeconomic environment which is conducive to higher "hard asset" prices.  Despite the fact that bitcoin is a relative newcomer to the world of hard assets, only coming into being a little over eight years ago, it is a powerhouse in terms of usability, divisibility, transferability, decentralization, and censorship-resistance.  All of this combines into a singular, scare digital asset without counterparty risk that can be moved at will and without permission anywhere on the planet (and other planets for that matter).  No doubt this is an attractive proposition in this day and age, which is why it comes as no surprise to those of us that are familar with this space that bitcoin is rallying the way it currently is.  Having said that, the technicals are not quite as sanguine as the fundamentals are for the time being, which is why we think some caution is warranted at current levels.

The main reason for our concern is that price is now reaching the top of the uppermost supply area that was created by the November 2013 ATH of 1163 $ on the Bitstamp exchange, which we can see a weekly chart of below.  This alone would not be all that worrying were it not in conjunction with a momentum setup that is overbought and somewhat divergent.  We can see this clearly in the RSI reading which is officially overbought, but is also bearishly divergent compared to the spike high at the beginning of the year.  Also note that volume profile is very thin up at these levels and exchanges volumes are not all that encouraging, however the A/D line (accumulation/distribution) continues to trend higher which is a good sign indeed.  Finally, market structure is still bullish and all relevant moving averages are confirming the market strength, so until we get a reversal signal this thing can keep moving higher.  Despite this being the case, we think it is also important to mention that there is the possibility of a double top around current levels which would likely spark a selloff to the downside, thus postponing the breakout to new ATH's for some period of time.  Our thinking is that if this latter option does materialize, then the likelihood of a large Cup & Handle pattern forming increases substantially, especially considering how much bitcoin likes C&H's.

To reiterate, for the time being we think the path of least resistance remains to the upside despite what are currently overbought technical conditions on pretty much all pertinent timeframes.  This is due to partially to the fundamental strength we see right now for bitcoin, in addition to the idea that a supply and demand imbalance is pushing prices higher.  On the other hand, we cannot rule out a sharp and unexpected correction lower given the aforementioned technicals, although we would use that dip as a buying opportunity for longer term positions.  For the time being, the key support and resistance levels to watch are $750 and $1000 to the downside, and $1163, $1175, and $1238 to the upside.