BTCCNY made a sharp drop from its recent rally upon hitting the 5000.00 handle as predicted in a previous article. Not only did profit-taking come into play but reports that the Chinese government is planning on restricting bitcoin trading also weighed on the cryptocurrency’s price.
As it turns out, authorities are finding the rise in bitcoin against the Chinese yuan worrisome, as investors in the mainland have been buying BTC to hedge against yuan devaluation. Now the government wants to impose limits on the amount of bitcoin moving in and out of the domestic economy, causing some investors to panic and book their profits off their recent positions in anticipation of declines.
Keep in mind that Chinese investor activity has been mostly responsible for bitcoin price gains over the past few months so the news that restrictions could be put in place has weighed heavily on demand. Then again, the government might have its hands tied with this one as the nature of bitcoin transactions makes it difficult for authorities to interfere in the market.
Of course there’s still the chance that China could impose a bitcoin ban altogether if their efforts don’t prove to be enough to limit BTC gains against the yuan. This could spur massive declines for the cryptocurrency since China is its largest market.
From a technical standpoint, BTCCNY is holding safely above its correction levels for the time being so there’s still strong support. The 61.8% Fib lines up with the 100 SMA dynamic support, which makes it a strong floor. Further losses beyond this point could bounce off the rising trend line support on the daily time frame, which lines up with the longer-term 200 SMA.
Speaking of moving averages the 100 SMA is above the 200 SMA so the path of least resistance is still to the upside. Also, the gap between the moving averages is widening, which reflects strengthening bullish pressure. In that case, BTCCNY could still make another attempt at breaking past the 5000.000 psychological resistance.
RSI is turning out of the oversold zone on the daily time frame to indicate that sellers are tired and that buyers could take over price action. Stochastic is still on the move down so there may be some selling pressure left and hasn’t hit the oversold region, but it appears to be turning higher to show that buyers are eager to hop in.
So far, only long red candlesticks have formed until the area of interest so it might be better to wait for reversal candlesticks to materialize before trying to hop in the ongoing uptrend. Stops can be placed below the rising trend line support, which might be the line in the sand for this climb, as a break below that area could mark the start of a longer-term drop.
Besides, updates from the Chinese government could continue to influence BTCCNY price action moving forward, as strict legislation could still dampen investor activity and therefore bitcoin rallies. Of course there are ways to circumvent these limits but it may take some time before majority of Chinese investors adjust to it, which suggests a likely larger correction for bitcoin price.
For now, bitcoin could also take its cue from the US elections as a Trump victory could inspire a flight to safety, possibly weighing on the cryptocurrency’s gains.