BTC/USD analysis: Bearish divergence in volume fires warning signs

Bitcoin is in the throes of recovery after losing 38% of its value on March 12. This sell-off was led by a 9.9% decline in the Dow Jones Industrial Average on the same day which built on the previous downward momentum between the dates of February 24 to February 28. During this time, the stock market faced its biggest decline since the 2008 financial crisis. Investors are still reeling from the crash, with anxieties heightened by the ongoing coronavirus pandemic.

Bitcoin, due to its highly volatile and speculative nature, now appears to be facing a liquidity problem which may stop its correction dead in its tracks. For the last three weeks the coin has made a solid recovery back up to a high of $7,000, but its trading volume continues to shrink, forming a bearish divergence and potential reversal to the downside. Additionally, on the daily charts sellers appear to be more motivated than buyers, with consistently higher volumes on red candles than green.

This lack of liquidity may be due to investors rushing into safe havens such as gold and the US dollar, with a greatly reduced appetite for risky assets such as bitcoin during these uncertain times.

Although it is not a definitive sign that bitcoin will reverse its upward direction, it is a warning that the coin’s recovery could have fallen into unsustainable territory