Bitcoin Channel Break

As we head into the weekend it’s time to take stock of the week’s winners and losers. As always this means either a feeling of celebration or regret on a Friday afternoon. Talking to various traders this week it’s clear that the move everyone is focused on is the sell-off in Bitcoin. Given the attention placed on the crypto-currency’s rally, the more than 17% sell off this week has been a big talking point. The interesting aspect here is that all the crypto-critics and Bitcoin deniers thoroughly enjoy any time the digital currency suffers a setback, so even those who missed the move had been able to enjoy it. Anyway, let’s take a look at what happened and why this was a great trade.

What Caused The Sell-Off?

Bitcoin started the week on an interesting note with price gapping lower from Friday’s close at the open on Monday. Price has been moving in a well-defined bull-channel over 2021 so far. However, the up move has seen strong bearish divergence building over the course of the rally, warning that momentum was waning and raising the risk of a reversal lower. The gap lower at the start of the week took price below the channel support line which was an immediate signal that a potentially deeper sell off was coming.

However, the main catalyst for the decline this week was news of President Biden’s tax-hike plan. The democrat leader announced plans to raise the capital gains tax on those earning more than $1 million by almost double to 39.6%. This would represent a major change in the US tax code and has seen investors rushing out of risk assets and booking profits on positions. Given the huge rally which has taken place in Bitcoin over the last year it was an obvious candidate for long-covering which is continuing as of writing. Let’s take a look at the technical picture

Technical Views

Bitcoin

The sell-off in Bitcoin this week has seen price breaking below the bull channel and below both the 57680 and 50510 support levels. While price holds below the latter, there is room for a deeper drop towards the 42980 level next. Bulls will need to see price quickly back above the 50510 level to alleviate the near-term bearishness.

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