Bitcoin (BTC) Bearish Divergence Points To Increased Risks Of A Flash Crash

Bitcoin (BTC) is about to break out of an ascending triangle that the majority of traders and analysts are expecting to break to the upside. However, ground reality points to the opposite as the RSI on the 4H chart for BTC/USD shows a clear bearish divergence. The loss in bullish momentum is also visible in the price action and the Fear and Greed Index which has declined from 64 to 62 today. This means that Bitcoin bulls that were calling for a rally towards $6,000 or higher are now starting to doubt themselves. As most of them are already holding Bitcoin (BTC) or other coins that they bought in anticipation of the rally to $6,000, when most of them start second guessing that move and sell, it is going to lead to a flash crash.

We have seen in the past that it only takes a few big orders to trigger panic in the market. The fact that the market did not even move on the China mining ban news is a very alarming sign. It shows that we are still far away from an actual trend reversal. This is because every time the trend reverses, the sentiment is completely shattered. When Bitcoin (BTC) recovered after the 2014-15 bear market, the sentiment was very negative. The Mt. Gox hack had just happened and Mt. Gox controlled around 70% of Bitcoin trading back then. There was a good reason to believe that it was the end of Bitcoin (BTC). This is how negative the sentiment has to be before the market actually sees a trend reversal. So far, nothing of the sort has happened. Investors are still quite hopeful of the next rally to $100,000 or $300,000. 

The weekly chart for BTCUSDShorts shows that the number of margined shorts has now declined to its trend line support. The weekly RSI is near its all-time low and it is clear that BTCUSDShorts is going to see a reversal at this point. This in other words means that the bears are going to have their way with the market again. Considering that BTCUSDShorts is about to see a trend reversal from here onwards, we expect bearish momentum to last for the next few months. This is in tandem with developments in major financial markets. The stock market is on the verge of its next big downtrend and every time the S&P 500 has declined, we have seen the cryptocurrency market decline even more.

Considering that the Federal Reserve intends to continue to unwind their balance sheet (cash in on investments) till September, 2019, we expect the market to perform poorly. We may also see the trade war situation worsen with domestic crises in the United States. Conflicts in the Middle East in the aftermath of the election in Israel are also going to have a significant impact on the markets. All things considered, the cryptocurrency market is expected to continue to experience more pain in the months ahead.