Do These Indicators Suggest a Bitcoin Price Rally Early in 2019?

Bitcoin (BTC), the world's largest cryptocurrency by market capitalization has enjoyed a staggering price increase in excess of 150,000 percent since it was first listed on exchanges back in July 2010.

Since then, the cryptocurrency has also experienced multiple bull runs, bear runs (the longest of which consumed much of 2014 and 2015) and stronger media attention year on year.

From a technical perspective, the relationship BTC has with traditional charting patterns is occasionally counter-intuitive to what one would normally expect.

Take, for example, the descending triangle which is typically bearish in nature.

While it does contain the prospect for breaking either way, the repeated failed (bearish) descending triangle breakdowns over the course of bitcoin's life cycle, leaves an unanswered question, are we viewing these patterns the wrong way? And if so what makes this year different?

The case for bitcoin's bullish breakout

Weekly chart

Bitcoin's relationship with the 200-day moving average (DMA) and descending triangle pattern has been significant.

Descending triangles are measured by connecting a series of lower highs, usually angled at 45 degrees and breaking down left to right thus creating a primary trendline. The secondary baseline connects two or more of the lowest lows in a series to form the horizontal 'floor'.

What you end up with is a descending triangle pattern that demonstrates a gradual loss of confidence in the asset you are looking at.

When the patterns and indicators are combined on bitcoin's weekly chart they show a consistent counter-play to their traditional bearish norms. As can be seen, price generally breaks bullish from the formation instead of continuing to lower supports as it normally should.

The only other time bitcoin broke down from the descending triangle was back in March 2014. Post-breakdown, the bulls managed a short-term rally before being rejected by the 200-DMA, which held price under for 1.2 years.

It's clear that the price of bitcoin being under the 200 DMA firmly establishes the market as bearish, and this time around is no exception. That said, history would suggest an upside break of the current descending triangle may be on the cards soon, and that could initiate a move above the DMA as a sign of a larger trend reversal.

While it does offer insights into the relationship bitcoin has with the 200-DMA, it is key to remember that the patterns also vary in scope and size, which is usually telling of the price action that follows.

So, based off the previous 1.2 year bear run, it's possible bitcoin could turn bullish by early next year, especially if all fundamentals are taken into account, as suggested by CNBC cryptotrader, Ran Nuener.

The case for bitcoin's bearish breakdowns

On the flipside, bitcoin has been staring down a bear market for the last 7 months and has dropped below the significant 200-DMA beginning Feb. 5.

Traditional patterns such as descending triangles are still worth viewing in bearish terms since the onset rush from 2017/18 was unprecedented and the subsequent sell-off that followed has seen bitcoin drop 67 percent to date from its all-time-high in December 2017.

Daily chart

As stated earlier, price falling below the 200 DMA has proven to be a sign the market has officially turned bearish.

A bearish trend combined with a bearish price pattern, the descending triangle, creates an ideal technical set up for further depreciation even though bitcoin tends to negate the bear view.

If price does break down as it technically should, there is a prior resistance and support zone in the $4,900 to $5,400 that may once again offer support to the falling price.

If price breaks up as it historically should, the nearby lower highs need to be surpassed on the higher time frames in order to prove a bearish to bullish trend change is in order. The first lower high that price needs to find acceptance above is near $6,850 (differs among exchanges dealing in USDT), while the next is closer to $7,400.

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• Bitcoin has ignored the bearish implications of the descending triangle in the past, so there is merit in considering a bullish resolution.
• Beginning in 2012, prices dropped below the 200-DMA (including 2018) twice. The prior bear market lasted 1.2 years, leaving some to speculate a possible ending in sight for the current retracement in price from the all-time-highs seen late last year.
• A weekly close below the triangle would likely provide confirmation to bearish continuation and set the stage for a prolonged bear market.
• Only finding acceptance above the 200 DMA and the descending triangle would revive bullish market settings

Disclosure: The authors hold USDT at the time of writing.

Candlestick chart image via Shutterstock; charts by Trading View