A clear divergence between prices and trading volumes on the charts suggests bitcoins (BTC) recent $800 rally could be short-lived.
Prices are currently up more than 9 percent from recent lows near $7,500 on June 6. Notably, BTC revived the short-term bullish outlook with a move above $8,100 on Wednesday. The follow-through has been positive, as well.
Yes, as trading volumes haven’t picked along with the price rise, the breakout lacks substance.
For instance, bitcoins 24-hour trading volume across all cryptocurrency exchanges currently stands at $19 billion down 42 percent from the high of $33 billion seen on May 16, according to CoinMarketCap.
More importantly, daily trading volume has averaged roughly $18 billion throughout the recent recovery from $7,500 to $8,300, which is significantly lower than the sell volume of $24 billion and $29 billion seen on May 30 and June 4.
While the wider market is reported to be rife with inflated volumes, the numbers from major exchanges included in the calculation of Bitwises�“real” bitcoin trading volume also show the recent price rise is not backed by big volumes.
The top cryptocurrency by market capitalization is currently trading at $8,270 on Bitstamp, having hit a high of $8,335 in the U.S. trading hours yesterday.
Bitcoins daily trading volume consistently printed above its 50-day moving average throughout the price rise from $4,000 to $9,000.
However, volume has been sitting below the 50-day average since June 6, putting a question mark on the sustainability of the rally from $7,500 to $8,300.
As can be seen above left, bitcoin trading volumes on Bitstamp have tapered off significantly over the last 10 days, with volume bars consistently printing lower highs.
Volumes continue to remain low despite the bearish channel breakout witnessed earlier this week a sign of low investor confidence in the price rise. Further, volume numbers on Coinbase and Bitfinex (above right) paint a similar picture.
That bearish divergence of trading volumes indicates the cryptocurrency may dive out of the rising wedge pattern (above left), confirming an end of the bounce from lows near $7,500.
A wedge breakdown, if confirmed, could yield a sell-off to $8,000. Acceptance below that psychological support would expose recent lows near $7,500.
If trading volumes improve in the next 24 hours, bitcoin will likely rise well above $8,500, validating Wednesdays falling channel breakout.
Disclosure:�The author holds no cryptocurrency assets�at the time of writing.