Bitcoin sold off for a second day as the dollar rallied and as “risk off” gripped the markets in the first half of the day. But European markets managed to rebound into the close as yields fell while the euro continued to weaken across the board. However, it remained to be seen whether European index futures would be dragged lower again along with US markets, or whether the bulls on Wall Street would return.
Judging by recent events, traders seem happy to be selling into the rallies rather than buying the dip. So, don’t be surprised if we see renewed weakness in the markets later on in the session.
If so, this could be further bad news for Bitcoin. The crypto has been correlating positively with risk assets over the past year and if that relationship remains strong then the digital currency could follow risk assets lower.
Even if a proper sell-off does not materialise for stocks and other risk assets today, Bitcoin traders need to proceed with caution because in recent days we have been getting more and more signs that the appetite for risk is slowly fading away across the financial markets with Chinese equities slumping, crude and copper also weakening. Bitcoin could be the next domino to fall as investors rush to book profit.
Bitcoin has actually formed a bearish signal in that it has broken its short-term bullish trend:
While a trend break is not necessarily the end of a major bull run, it certainly serves as a warning sign for Bitcoin bulls. A clean break below the $50K hurdle, if seen, could be the trigger behind a potentially sharper drop.
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