The Bitcoin (BTC) market is pretty quiet today, after being rejected a couple of days ago at a downtrend resistance line and returning to a state of slow consolidation. The leading crypto has been in this consolidation and accumulation phase since early July, and volatility is continuously waning as price is squeezed into its apex.
We see this illustrated below. Consolidation is signaled by falling trade volume, and this pattern does not terminate until the middle of October. Price is likely to break up or down out of this region between now and then.
Obviously, predicting which way price will break is not advisable. Generally, Bitcoin is still within a broad uptrend, and bulls generally seem serious about keeping the leading crypto above $10,000. But it remains to be seen whether we have a new, multi-year uptrend on our hands similar to 2016-17’s bull market; or whether we have a unprecedentedly long bear market.
One tool we can use to gauge market sentiment is the ratio of long/short futures contracts open on exchanges. And Bitfinex, a popular margin exchange for which data is available on contract positions, is definitely leaning with a bullish bias.
We can see above the same 2-day chart positioned above a long/short ratio chart of futures contracts held on Bitfinex. More than twice as many bitcoin-denominated long contracts are held versus shorts - about 28,000 to 12,000 - showing that Bitfinex traders clearly expect a break up.
However, on the competing Bitmex bitcoin-derivatives exchange, the mood is much more ambivalent. Thanks to data from Coinfarm.online, we can see that the split between longs and shorts as almost exactly 50/50. Almost $3 billion of leveraged contracts have accumulated on Bitmex, split almost perfectly down the middle.
Within the broader cryptoasset market, these days Bitcoin has been pretty much the only game in town. Bitcoin’s dominance of the crypto market share has grown to levels not seen in years, now containing about 72% of crypto investments.
Although many claim that trading indicators are not useful on this chart, we can see on the RSI for the weekly dominance chart (above) that Bitcoin is very overbought versus other cryptos historically speaking. A number of bear divergences are also visible on lower timeframes like the 2-day (below).
By the looks of it, we are trending at the very edge of what the cryptoasset market is capable of accommodating, in some sense. For years, the market has been one of Bitcoin + altcoins, after altcoins really took off at the beginning of 2017. If Bitcoin dominance continues to grow, however, the necessary result would seem to be a return to a Bitcoin + almost nothing crypto ecosystem - a Bitcoin maximalist ecosystem. The reader can judge for themselves how likely this is to transpire.
At any rate, Q4 2019 should be a good deal more exciting than Q3 was, which has been a period of recovery from the parabolic gains of H1. Bitcoin will likely break hard one way or the other, when its consolidation period wraps up and price coalesces around $10,000.
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