Bitcoin Faces Hurdle as Dominance Index Surges Past 61%

Bitcoin Faces Hurdle as Dominance Index Surges Past 61%

 
Earlier this week, crypto currency king Bitcoin tore above the $7,500 mark for the first time after it came into existence. Further, it also pushed the crypto currency market capitalisation to a high of $200 billion. While the investors are very much happy about the manner in which things are developing in the crypto arena, investment advisors and economists have sounded a note of caution. Most analysts believe that Bitcoin is a bubble which can burst at any time. Even though we do not buy that argument as Bitcoin is fundamentally a different technology that allows quick transfer of money at almost no cost, still, the manner in which Bitcoin has appreciated in the past few trading sessions is something to be studied closely. Note that we had mentioned in our October 25 report that BTCUSD is going to rise sharply. We had also mentioned our intention to go long at $5250+ levels. That means, we are sitting on almost 50% profit in a week’s time. We believe the time has come to book profit. On the basis of the details provided underneath, we anticipate a short-term correction in the BTCUSD pair.

The sharp rise in the price has ensured that the Bitcoin dominance index – a measure used to indicate the percentage of market capitalisation contributed to the crypto currency market – surged above 61%, once again. The Bitcoin dominance index, which was around 90% before March 2017, had declined below 60%, following the increase in popularity of other altcoins. One of the main reasons for the revival in popularity of Bitcoin is the announcement of CME and CBOE, two of the world’s largest derivative exchanges, to launch Bitcoin future exchanges by the end of this year. That has increased the demand for Bitcoin from traditional financial institutions.

Notably, LedgerX is the only CFTC regulated organisation offering Bitcoin and other cypto currencies as of now. The launch of Bitcoin and other crypto currency derivative contracts by CME and CBOE will act as a recognition for Bitcoin and increase its popularity further due to the entry of institutional players.

However, we do not foresee a situation where the Bitcoin dominance index will reach 90%. The demand for Ethereum, Bitcoin Cash, Ripple coin, and several other altcoins are increasing as they are built to serve different purposes. Thus, Bitcoin may have a dominance index of between 60% and 70% in the future. That clearly indicates that the current price is ripe for a correction.

Technically, the BTCUSD pair is facing resistance at 7230. The MACD indicator is declining towards the zero level. Thus, we can expect a deeper price correction.

BTCUSD - Technical Analysis - 8th November 2017

A short position looks appropriate at this point in time. We wish to open a short position near 7100, with a stop loss order above 7400. If the pair declines as anticipated, we will book our profit near 6180.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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