Bitcoin Week Compression

Markets Report: Bitcoin seals a week of compression as bulls demand $9,400 close

An increasingly narrow price compression zone is due for disruption, but influential price factors mean Bitcoin is stuck just north of $9,000

Bitcoin is ending its latest week’s trading just inches from where it began on Monday, as a major breakout evades the market.

Despite fluctuations throughout the week, Bitcoin price performance failed to inspire traders, with a narrow trading corridor characterizing the market.

Modern Consensus takes a look back at the action over the past few days, part of a weekly series summarizing market movements every Friday. We also publish a markets outlook series every Monday, detailing what to expect from Bitcoin in the week ahead.

Stocks spark Bitcoin’s “slow grind”

This week began with a classic scenario for Bitcoin, price action being dictated by the familiar forces of stocks and investor risk appetite.

BTC/USD traded at around $9,200, as mixed moves on stocks still slightly favored the upside despite reservations about the continuing spread of coronavirus among investors.

Bitcoin has reinforced its dependency on macro market movements for weeks on end, and the opening bell on Monday was no different—the slight gains initially managed to keep BTC/USD further away from $9,000 support.

Thereafter, a pattern soon began to emerge which would characterize the rest of the week—Bitcoin in a “slow grind” downwards with a clear desire to test the $9,000 level.

In the largest cryptocurrency’s favor were its fundamentals: mining’s block difficulty hit its highest in history after Monday’s adjustment, while hash rate is also circling record average values.

A difference of sentiment thus emerged between spot markets and miners, who gave the impression that they were as committed as ever to Bitcoin profitability.

Bitcoin week compression
Bitcoin’s narrowing price compression. (Photo: CoinMarketCap)

Institutions look shaky on Bitcoin

The extent to which traders are bullish or bearish became more of a concern on Tuesday, as one popular analyst warned that on the institutional side, the mood was hardly optimistic.

Analyzing data, filbfilb noted that institutional players on Bitcoin derivatives markets were “relatively happy” being short. The market setup broadly reminded him of that from late February, weeks before the coronavirus-induced crash to $3,600.

Futures had been looking weaker already, with a lack of volume in step with retail sending warning signs about a possible price drop. Other indicators reinforced the message, such as realized volatility hitting 3-year lows. 

Combined, they delivered a clear message that Bitcoin is in an increasingly tight “compression” phase.

Later on, fellow trader Josh Rager agreed, demonstrating that a series of higher lows and lower highs was creating a narrowing wedge between $9,000 and $9,500. By definition, however, such a pattern must ultimately end in an exit of the compression zone. 

Reviewing previous compression cycles, however, Rager was unconvinced that this time around would form an exception to a tried-and-tested rule: compressions end in a breakdown, only after which does the Bitcoin price recover.

Nonetheless, that recovery could end up being much more bullish than many imagine, ultimately topping Bitcoin’s all-time highs of $20,000.

“This time could be different but I have a strong conviction that $BTC price does at least a fake-out below the current compression before a potential rally to new (all-time high),” he summarized.

Bitcoin week compression
Macro asset volatility comparison showing Bitcoin’s drop. (Photo: Skew)

Analysts draw up targets for bears

Focusing on the immediate potential for downside, however, filbfilb was eyeing a drop of at least several hundred dollars.

Should bulls fail to regain control and BTC deliver a price close above $9,400, he argued, targets below the compression zone lay at $8,700 and $8,200—or even lower.

Specifically, “decent” buy support at $8,200 coincided with Bitcoin’s current 20-week moving average.

For the time being, down instead of up remains a firm bias—since June, multiple attempts to crack resistance closer to $9,500 have all failed, with $10,000 remaining a pipe dream support level throughout 2020.

Other analysts previously argued that such price movements would be entirely acceptable under current conditions. Even a drop as low as $6,000 would not spell a definitive bear market cycle, one estimate claimed last month. 

Coronavirus in the macro driving seat

Friday’s trading activity has so far delivered little hint that market behavior is changing. At press time, BTC/USD was fluctuating between $9,080 and $9,150 without any clear direction.

Both Rager’s and filbfilb’s requirements for a daily close of at least $9,400 remained unlikely, while $9,000 support likewise remained intact.

Stock markets were somewhat less optimistic than at the start of the week, with economic concerns beginning to weigh on sentiment late Thursday. 

Those concerns revolved once again around coronavirus in the U.S., which is seeing some states reverse their reopening in light of fresh infections.

“More than 70% of the country is pausing or reversing reopening plans and credit card data already shows a dip in spending so far in July,” Stenn Group president Dr. Kerstin Braun told Yahoo! Finance.

Braun described the current macro climate as “all over the place,” and that clear signs will not emerge until Coronavirus cases are brought under control. 

Next week will likely see a continuation of that situation playing out, with stocks—and therefore Bitcoin—reacting accordingly.

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Anthony Bevan is a journalist focusing on disruptive finance and cryptocurrency, along with the changing face of the market as Bitcoin gains mainstream adoption. Journalists covering cryptocurrency for Modern Consensus May hold positions in some of the currencies they write about.