Bitcoins 100k speedbump prompts shakeout at the highs

• The rally from 70k to 100k came from ‘smaller pockets’
• Last week saw a record reduction of open interest on bitcoin futures
• I suspect a correction is due, hance the bias to fade into rallies
• Yet market positioning also suggest deeper pockets are waiting for such as pullback
• $124.8k bull flag target remains in play (after the anticipated correction)

I had previously spoken about the temptation for traders to book profits as bitcoin made its way to S100k. While I will concede there didn’t appear to be too much of a rush for the exit, given its clean rally into the big level, price action since its first trip to $100k has seen the return of a familiar pattern: bitcoin pushes higher, only to quickly reverse and punish latecomers.

This is a pattern I have repeatedly spoken about whenever bitcoin reaches a big level. And I now suspect we’re teetering on the edge of a correction before its rally resumes towards my $124.8k bull-flag target.

Open interest is lower, despite higher prices

Open interest can be taken as a proxy for volume on the futures markets. And we can see that open interest (OI) has been trending higher for the past three years, and reached its own record high as bitcoin futures first tagged $100k. We also saw a record week-over-week increase of OI the week of its $100k record high.

However, since then open interest has moved lower while prices have grinded slightly higher. Moreover, last week saw the largest decrease of open interest on record. Does that mean we’ve reached a top? Not necessarily.

Institutions stand their ground, waiting for a dip

While OI plunged last week, trading volumes of asset managers barely budged. In fact they closed just -131 bitcoin futures last week. Up until September, asset managers were firmly behind the bitcoin rally but there was a notable drop of long exposure in September, yet this was not coupled with a rise in shorts. We have since seen net-long exposure among the cash-rich investors to trend higher with bitcoin prices, albeit at a slower pace than previously.

This suggest smaller traders were mostly behind the rally from 70k to 100k and that deep pockets may be waiting to snap up a bargain. And as prices are now grinding higher following a drop in open interest, I suspect the market is primed for a pullback ahead of its next leg towards 125k.

Bitcoin future (BTC1!) technical analysis

The breakout from the flag pattern was direct and clean, leaving a breakaway gap along the way. Such gaps should not be filled (at least for a long time), so the bias is for any pullback to hold above 81,610.

Prices are grinding higher in a haphazard way on the daily chart while daily trading volumes drop, which can be an indication that bulls are losing steam. We have also seen a bearish divergence on the weekly RSI (2) in the overbought zone, and it now sits below 50, warning of a near-term correction.

Bulls could seek to fade into rallies towards the record high in anticipation of a move down to at least 90k, near the monthly pivot point (89,245). The 87,945 low may also provide support, a break of which brings 84k into focus.

But given my suspicion that institutions are waiting for such a pullback and my hunch that ‘gap support’ will not be closed, I will then look for evidence of a swing low in anticipation of its move higher to 125k.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge