Bitcoin drops, but the fundamentals against fiat remain the same, providing an opportunity for a favorable long-term trade. The structure of the market suggests the current downturn is just a pullback for BTC-USD, with the market squatting and getting ready to jump to new highs.
Another Upward Move, Retracement and Extension
BTC-USD dropped approximately $100 in just four hours, falling from a peak of $1276.00 to $1175.97. When looking at the chart for the past few months, we discover a pattern of retracements and extensions.
The chart below shows the behavior of the market, with a repeating pattern of upward expansion, retracement and then extension. For example, the first bullish run from under $900 to a high of $1074.69 retraced to $927.08 and then continued higher, achieving the extension level at $1194.09 so far. Notice that as you move from left to right of the chart, the preceding Fibonacci extension levels have been reached.
We now look for extension toward $1387.30 to $1403.68.
Market participants have pointed to various reasons for the fall in BTC-USD, with possible explanations being the news out of China that exchanges will remain under strict supervision by the PBoC, that AntPool has started to mine Bitcoin Unlimited blocks, or insider trading.
1/ PBoC director: we shall adopt a forgiving attitude, not prohibit the exchanges for the time being & set an observation period. #bitcoin pic.twitter.com/3WXZXCGx0K
— cnLedger (@cnLedger) March 7, 2017
I think the #Bitcoin market makers have spoken. @JihanWu starts signaling BU, price drops. #BULogic pic.twitter.com/cXSl9dGASL
— WhalePanda (@WhalePanda) March 7, 2017
A Healthy Pullback
BTC-USD reached a fresh low at $1175.97, but has since recovered to $1256.01 at the time of writing. After surging and continuing higher so relentlessly, occasional pullbacks like the one experienced on March 7, are required for a sustainable upward trend. The sell-off has reinvigourated bulls, with many traders buying the dip.
The chart below shows that according to Fibonacci analysis, the uptrend remains intact. The market did not manage to test the 23.6 percent retracement level at $1167.36 and has instead moved higher back toward the high at $1298.00. Therefore, we should see BTC-USD continue higher, confirmed once resistance at $1257.64 is broken, the 76.4 percent retracement level.
Therefore, the plan of action is to set limit buy orders just above the Fibonacci levels acting as resistance at $1257.64 and $1298.00 respectively. We look for a break of these levels with a target of $1403.68, the Fibonacci extension level, which could be rapidly reached in event of an approval for the COIN ETF by March 13.
Moreover, supporting further moves to the upside is the Renko chart, shown below.
Two bearish Renko candlesticks have formed but the trend looks to be changing, with a bullish Renko candlestick in progress. Further confirmation will be give once the market sustains above $1262.25. Once the first bullish Renko candlestick is formed following the most recent bearish Renko, we will enter buy positions. A switch from a red to a green Renko indicates the end of a downtrend and the beginning of an uptrend.
Once the buy signal is given, we monitor the 4-hour Renko chart and only exit once the market turns south again and the first red Renko is formed following a green Renko. Therefore, the next 4-hour close will determine whether the downtrend has been vanquished and look for the emergence of a green Renko to confirm a bullish outlook.
In summary, since the market is a composite of all human traders, the Fibonacci ratio is expressed in its behaviour and has abided by these levels, being attracted to extenstion levels and finding a floor at retracement levels. Therefore, the current dip represents an opportunity for bitcoin bulls to recharge and initiate an extension of the prevailing upward trend; once a break of $1298.00 is achieved, the cryptocurrency should go onto test the $1400 level.