Bitcoin Price Falls on Chinese Whispers
Bitcoin suffered a steep drop on September 8, as rumors circulated that Bitcoin exchanges in China were to be banned. The event and reactions somewhat mirror the ICO ban on September 4, with crypto markets in the red. BTC-USD fell from the September 8 high of $4679.97 to a fresh low of $4227.64 on the Bitstamp exchange, breaking out of the short-term equilibrium.
The drop was precipitated by a news article out of China, which may be badly translated or just a bout of fake news. The article’s title roughly translates as “The bigger storm is approaching: the regulatory brewing ban on bitcover trading platform.” It goes on to state the bitcoin trading platform’s and their activites have become illegal, according to sources close to Chinese regulators. The ICO mania is also mentioned, with a quote from Professor Deng Jianpeng, a professor at the Central University for Nationalities, stating that “up to 90 percent of ICO projects are currently suspected of fraud.”
Three days later, and the price of bitcoin recovered from the crackdown on ICOs. There is also mention that regulators are becoming concerned about the use of bitcoin for money laundering and serving the informal economy. The rumor led to panic in the markets with increased selling interest. But are the concerns justified?
Another media article published on September 8, this time from a more reliable source, from Caixin possesses the headline “The end of the virtual currency exchange era.” Cryptocurrency is not being targeted, the article claims, but rather exchanges are being closed and person to person trades are still permitted.
Whether fake news or meaning lost in translate, this is not the first time announcements out of China have spooked the markets. In the past, there have been many instances of a rumor that China has banned bitcoin. BTCChina stated that they had received no correspondence from regulators on the ‘ban’ of bitcoin trading activities:
With nothing confirmed, we can assume that the ban on bitcoin exchanges is just hype. Cnledger, a reliable source for Bitcoin news out of China, stated on September 6 that fake news permeates the space, pointing a faked photograph which superimposes the Bter exchange logo in the background. The actual picture is from a scam in 2016 unrelated to cryptocurrency.
The 4-hour price action for BTC-USD is shown below. In our previous price analysis, we warned of an imminent breakout. The breakout to the downside reached our target at $4356.42, which has held as support so far. Therefore, we should keep a close watch of this support level and look for a 4-hour close below this level for further losses.
Alsom we see two fractals are likely to form; a new resistance at $4679.97 and a new support at $4227.64. The Ichimoku cloud provides an equilibrum zone between $4350-$4490 and we expect the market to trade within this range before deciding on the next direction.
The 4-hour red candlestick, however, has a long wick, suggesting that bears are not in complete control of the market. For instance, the close of this candlestick was in the middle third of the entire range of that trading session.
The daily price chart is shown below. A daily close below the base line (red) at $4289.95 will open up further losses over the medium term. Support stands at the most recent fractal buy level at $4001.93. A further target to the downside lie at $3155, the horizontal portion of the lower span of the Ichimoku cloud. However, if BTC-USD holds above $4289.95, the market will look to test the immediate resistance at $4490.91 (conversion line).