After a more than 15 percent drop in just three days, bitcoin has begun to make attempts to recover. Is the sale over? We don’t think so. And there are several reasons for this.
The cryptocurrency was dragged down by a large-scale sale of other risky assets, which was triggered by news about the possible default of the Chinese giant Evergrande (HK:3333). At the same time, gold, which acts as a classic “safe haven” asset, added 1.5%. In our opinion, this contradicts the claims of many experts that BTC can act as a substitute for the yellow metal during periods of falling demand for risk.
The People’s Bank of China has begun pumping liquidity into the country’s financial system to avoid market turmoil after the holidays, and investors may be encouraged that regulators will not allow Evergrande to repeat the fate of Lehman Brothers. The outcome is not yet a foregone conclusion, as China has been desperately trying to combat excessive speculation in various markets lately, and the Evergrande crisis does not simplify the situation.
It remains unclear whether Beijing will allow the country’s second-largest developer to go bankrupt as a signal to other local companies with a high share of borrowed funds in their capital. Thus, an additional incentive for the risky asset markets was Evergrande’s private negotiations with bondholders regarding the payment of the September coupon (which slightly postponed the default).
At the time of writing, bitcoin’s daily losses were about 2%. The cryptocurrency found support at the key milestone of $40,000.
So, why don’t we recommend investors to buy back the drawdown? Graphs will help us answer this question.
BTC/USD – daily timeframe BTC/USD – daily timeframe
Recent attempts to grow the digital token were nothing more than a rollback to retest the completed H&S model, presumably fueled by the closure of short positions.
Moreover, a drop below $28,890 will reverse a long-term downward trend.
BTC/USD – weekly timeframe BTC/USD – weekly timeframe
Trading strategies for sale
Conservative traders should wait for the repeated testing of the “neck” line and the fall, which will lead to the end of the session under the $ 40,000 mark.
Moderate traders should also make sure that the price stays below H&S (at least at the close).
Aggressive traders can sell now, provided they accept the accompanying risk of trying to outperform the market.