Chart Of The Day: Bitcoin Sinks But Bullish Overall Stance Could Continue

Bitcoin is down again today, reaching as low as $31,300 earlier this morning, its lowest level since January. The current catalyst weighing on the cryptocurrency—which has seen another $300 million in value erased since Friday alone—is China’s escalating crackdown on cryptocurrencies.

Initially, regulators in the country’s Sichuan provence ordered crypto miners to shut down their activities. Yesterday, the country's central bank released a statement saying "it had urged some banks and payment firms to crack down harder on cryptocurrency trading," and block crypto transactions. Among the financial institutions targeted by the new PBoC move were China Construction Bank (SS:601939) and Agricultural Bank of China (SS:601288) as well as Ant Group's Alipay.

Given that the Asian nation accounts for roughly 65% of the world’s mining, it’s understandably upsetting digital token investors. Plus, coupled with last week's World Bank deniel of support for El Salvador's effort to make Bitcoin its legal tender, as well as Elon Musk flip-flopping on whether Tesla (NASDAQ:TSLA) will accept BTC as payment for the company's electric vehicles, the digital token has been experiencing even more volatility than is usual for the already volatile token.

In addition, the Fed’s sudden, surprise hawkish turn—wherein the US central bank indicated they were moving the timeline ahead for tightening—boosted the dollar even as it reduced Bitcoin's appeal, which is seen as a haven from inflation.

Still, Bitcoin bulls appear to be willing to go against this barrage of negative news. Are they justified?

BTC/USD Daily

Despite the sudden flurry of so much negative news, for a full month as of tomorrow, Bitcoin has been able to remain standing.

That's not to say the picture is rosy. As of this writing, this year's gains for the most popular digital currency by market cap have been wiped out.

Indeed, the crypto token has fallen below its uptrend line since October. It recently triggered a death cross, and both the MACD and RSI are bearish. If the price drops below $29,000 we expect it will fall much lower still.

Nevertheless, Bitcoin rebounded today, confirming the support of an exceptionally bullish hammer on June 8, with an exceedingly long lower shadow which affirmed the support of the May 23 low. That raises the potential of a rebound to the top of a month-long range. Then, it would retest the bottom of the broken uptrend line.

Bottom line: for a relatively small risk, you could create the potential for disproportionately large gains.

Trading Strategies

Conservative traders should wait for the resolution of the long-term trend. That would mean new medium-term rising peaks and troughs would be created, or BTC would fall below $29,000 for a continued medium-term downtrend.

Moderate traders would trade in the direction of the range’s breakout.

Aggressive traders could go long now, given that the asset’s proximity to the hammer support is close, relative to the range top—affording a most favorable risk-reward ratio.

Do not trade without a sound trading plan. Here is an example that includes the basic parameters:

Trade Sample – Aggressive, Long Position

• Entry: $32,000
• Stop-Loss: $31,000
• Risk: $1,000
• Target: $40,000
• Reward: $8,000
• Risk:Reward Ratio: 1:8

Author's Note: The above is just a sample. The full analysis is in the body of the post. Remember, it’s just our interpretation. We don’t own a crystal ball and can't predict the future. If you’re not willing to lose your trading capital, do not trade it. Success or failure is measured in overall trading, not a single trade.  Your personal circumstances will impact your trading results. Therefore, you must learn to create a plan that incorporates your budget, temperament and timing. Till you learn how to do that, we invite you to use our sample—for educational purposes only, and not necessarily for profit. Otherwise you’ll end up with neither. That's guaranteed...and there's no money back.