The United States Federal Reserve announced a barrage of programs aimed to help the markets, with no limit. That means unlimited QE. Not only the crypto markets are showing a bounce, but other markets are also experiencing the same.
Equity markets in the United States hit their limit down of 5% in the futures markets earlier today, but are up 8% since the low. What can be expected from the crypto markets, due to this news?
Crypto market daily performance. Source: Coin360
Bitcoin holds the $5,600 support
BTC USD 6-hour chart. Source: TradingView
The previous article was showing a bullish scenario, through which the price of Bitcoin (BTC) had to hold this $5,600-5,700 level for support. The confirmation came, and the price of Bitcoin rallied upwards, mainly because of the news from the Fed.
However, is the view on the price change? No. The price of Bitcoin is still resting beneath the crucial level of $6,800-6,900. A breakthrough in this resistance would benefit further upwards momentum. Until then, the market likely shows a bearish retest and some relief. Such is due to relief on all the equity markets.
Are equity markets continuing their relief bounce?
German stock index DAX 1-week chart. Source: TradingView
It’s likely to see a relief bounce on the equity markets for several reasons. One of the reasons is the economic measures taken by governments to help companies and people in their financial problems.
The other one is the acceptance and understanding of the effects of the coronavirus. The first wave of panic is now over, so these effects are already priced in. Alongside that, the indicators are showing a massive drop in the equity markets, which generally gives space for some upwards bounces.
As discussed in an earlier article, the first drop of a market reversal ends up being between 35-50%. The European and U.S. stock markets have witnessed a 40% drop in the past weeks.
A basic level for the U.S. stock markets, as the 18000 points level is key support, similar to the 8200 points level on the German Stock Index.
Dow Jones Index 1-week chart. Source: TradingView
What does that mean for Bitcoin and the cryptomarkets? In case of a relief bounce on the equity markets, other markets will benefit as well. They dropped down simultaneously, so they’ll bounce up simultaneously as well until the correlation drops. Recently, every market is still showing positive correlations with each other.
Not only the equity markets and Bitcoin have been showing strong bounces in the past hours, but a similar bounce is also shown on the commodities (gold and silver) markets.
Total market capitalization crypto still beneath resistance
Total market capitalization cryptocurrency 1-day chart. Source: TradingView
The total market capitalization of cryptocurrencies is still showing a clear view of the markets. If the total market capitalization remains below $185-188 billion, lower levels should be tested for support. The moment the market flips the red zone for support, then there’s more bullish and upwards momentum likely to occur towards $240 billion.
However, the markets have rejected massively previously at the $6,800 barrier, which might indicate that there’s not much bullish momentum going on right now, especially after a 50% drop in one day.
The bullish scenario for Bitcoin
BTC USD bullish scenario 4-hour chart. Source: TradingView
The bullish scenario is remaining reasonably unchanged. A clear break of the red zone at $6,800-6,900 is needed in order to sustain and warrant bullish momentum.
However, short-term support levels can be tested before this test occurs. Through that, the market wants to see continued higher lows in order to keep an uptrend going.
A flip of the $6,100 level is the first step, after which the $6,500 level needs to be flipped for support. If these levels flip, a test of the $6,800-6,900 resistance area is the next step. If that level breaks, the market is likely to see a $1,000 candle towards $7,800, as that’s the next resistance to be watched.
Such a move would flip the momentum bullish in general. However, as stated previously, the $6,800-6,900 area is crucial to be flipped as support. When that happens, more upside is on the tables.
The bearish scenario for Bitcoin
BTC USD bearish scenario 4-hour chart. Source: TradingView
The bearish scenario is still the primary scenario. As long as $6,800-6,900 is not broken to the upside, there’s more downside to be expected.
The most likely scenario is a rising wedge structure, through which the liquidity at the upside is taken at $6,800-6,900 before the price drops to the support levels at $4,800 and $5,200.
A lower high at $6,500-6,600 is also beneficial for such a downwards drop.
All-in-all, the market should consider the action taken by the Fed to be positive in the short-term, though these measures may trigger further dropdowns in the next months, which may negatively impact Bitcoin’s price as well.
But, long-term, more dollars being created is bullish for Bitcoin and commodities. Be cautious during volatile movements in the markets!
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.