Plenty of traders have possibly been frustrated by the lack of volatility in Bitcoin over recent months. The large percentage moves, both up and down, that had been experienced in the latter part of 2017 and the first couple of months of 2018 have faded. In fact, during May a weekly barometer of Bitcoin volatility dropped below 3%. This was the lowest it had been for a year, demonstrating just how relatively quiet the cryptocurrency daily price moves had become.
News broke of the hacking of a South Korean exchange and, coming into this week, the Bitcoin price was trading almost $1,000 lower than where it was on Friday.
So far we have seen some calm returning in early trading - but this does still make for an interesting few weeks ahead. The peak for Bitcoin was December last year, when the price reached just shy of $20,000. The corresponding sell-off from these highs ran into early February of this year, setting a low of $5,900. What is interesting is that since then, this level has not been broken. The price sold off in March, but only as low as the $6,400 area before recovering.
This is something that is seen in all financial markets - price hits a level where market participants see “value”. In layman's terms, the view is that the weakness has been overdone, the buyers come in and lift the price higher.
This is the closest Bitcoin has come to this area of support for two months. Whilst the weekend volatility could be put down as something of a freak event due to the exchange hacking, if history is going to repeat itself then this could be a buying opportunity for those who believe this old zone of support is going to hold.
Of course, we also need a scenario for a break below here. Traditionally, breaks below support are seen as negative. There's a clear zone where buyers have stepped up in the past and bought - if a market sails through then it looks as if sentiment has changed. An area where the particular market was seen as a “bargain” before doesn’t manage to support the price this time around.
Either way, the hacking of the exchange has certainly made Bitcoin a bit more interesting than it has been for some time - and the eyes of traders will be on that $5,900 to $6,400 zone to see if it is going to hold (or, to use the coiners favourite phrase, HODL) again.
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