On Monday, Bitcoin quotes soared by almost 6% and updated the maximum of a year and a half, rising to the level of $42000. Tuesday morning, the bulls tried to continue the upward movement, but this time they were disappointed. Yesterday, the price of the main cryptocurrency rose, while other risky assets in the global financial markets went into correction. Though belatedly, Bitcoin is going to pullback from local highs.
The main topic in the cryptocurrency market remains the impending approval of Bitcoin ETFs in the US. The Securities and Exchange Commission (SEC) hasn’t challenged a court ruling that it illegally rejected applications for a cryptocurrency exchange-traded fund. SEC Chairman Gary Gensler had previously said that up to 10 applications for a Bitcoin-ETF were pending before the commission. Matteo Greco, research analyst at investment business Fineqia International, notes January as the most realistic timeframe for news from the SEC.
In the meantime, Bitcoin dynamics has pulled away from other assets. Bloomberg reports that the main cryptocurrency's correlation with the MSCI World Index fell from 0.6 to 0.18. Bitcoin's similar correlation with the gold price has almost disappeared, although it has held steady in the 0.3–0.4 range since the beginning of the year. Given the correction that has begun in the stock and commodity markets, the risk of a fall in cryptocurrency quotes cannot be discounted.
Technical indicators also signal a high probability of a downward pullback in Bitcoin. RSI and Stochastic indicators are close to the overbought zone and may soon form a full-fledged signal of a reversal in the price movement. Except for a few days in the middle of November, Bitcoin hasn’t had a serious correction since the beginning of the current rally, i.e. almost 2 months. In such conditions, the scale of the pullback could be very large, and the bears could head towards the 40000 level as the first target.
The following trading strategy can be suggested:
Sell BTCUSD at the current price. Take profit — 40000. Stop loss — 42500.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.