Bitcoin (BTC) is again lacking a clear directional bias, but may soon pick up a strong bid against ethereum and other altcoins, according to intermarket analysis.
The leading cryptocurrency is trading in a sideways manner around $6,400 on Coinbase for the eighth day and is struggling to find buyers, despite having charted a bullish inverted hammer last week near the key support of $6,000.
While the absence of a positive follow-through to last week’s bullish pattern is a slight cause for concern, it is still too early to adopt a bearish view on the cryptocurrency. This is because prices are holding well above the all-important 21-month exponential moving average (EMA) support of 6,121.
Further, BTC is still trapped in a narrow range of $6,360 and $6,480. Hence, the immediate outlook remains neutral.
However, BTC could shine against ETH and other innovations as the ETH/BTC pair – a risk barometer – is looking south, indicating risk aversion in the cryptocurrency market.
As most alternative cryptocurrencies are built on the ethereum blockchain, the ETH/BTC serves as a good indicator of risk-on/risk-off sentiment, that is, rising ETH/BTC means risk-on and falling ETH/BTC means risk-off.
A risk-on period is characterized by an increased demand for high-risk cryptocurrencies. Therefore, during risk-on BTC tends to depreciate against ETH and other altcoins as fiat money tends to flow into cryptocurrency markets via major assets like BTC and is then rotated into alternative cryptocurrencies.
Meanwhile, during risk aversion, money is rotated out of altcoins and into BTC, leading to a drop in ETH/BTC. Thus, a bearish technical setup on ETH/BTC could be considered an advance indicator of impending risk aversion and an increased flow of money from altcoins to BTC.
BTC/USD hourly chart
A break below the lower edge of the sideways channel, currently at $6,360, would open the doors to 21-month EMA of $6,120.
On the other hand, a move above the upper edge of $6,480 may allow a rally to last week’s high of $6,810.
ETH/BTC daily chart
As can be seen, the ETH/BTC pair fell below 0.031994 BTC (Sept. 25 low) on Oct. 11, adding credence to rising wedge breakdown witnessed on Sept. 25.
Further, the pair repeatedly failed to get back above the former support-turned-resistance of 0.031994 BTC in the last ten days, bolstering the already bearish setup.
As a result, the ratio will likely find acceptance below Oct. 18 low of 0.030924 BTC in the next day or two and slide toward the falling channel support of 0.029395 BTC.
The ETH/BTC pair risks falling below 0.03 BTC in the next few days, which means risk aversion is likely to grip the markets.
The risk-off mood will likely worsen if BTC suffers a downside break of the $6,360–$6,480 range. Range breakdown, if confirmed, could yield a sell-off to the 21-month EMA of $6,120.
BTC is expected to outperform other cryptocurrencies as during times of stress, investors tend to move money out of high-risk alternative cryptocurrencies and into safer options like BTC.
The risk appetite will likely improve if BTC sees an upside break of the trading range, in which case, prices may rise toward $6,800.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; charts by Trading View