Bitcoin Breaks Down But Remains Leadership

While investors have been busy with headlines related to the Fed, trade negotiations, Brexit news and more, it has been a relatively quiet summer for the usually rambunctious Cryptocurrency market. Bitcoin ($BTCUSD) and "Alt-Coins" such as Ethereum ($ETHUSD) and Litecoin ($LTCUSD) rallied aggressively from April to June but volatility has since cooled off as prices have chopped sideways for most of the third quarter.

An interesting development that has taken course this year is the outperformance from Bitcoin relative to just about every other Cryptocurrency. In the past we've seen lesser known coins outperform Bitcoin during crypto bull markets, but that relationship didn't hold true during Q2's rally as Bitcoin outperformed just about every alternative. Here is a performance chart of the three major cryptocurrencies since prices bottomed on December 15th of last year.

If you look at returns over the trailing year, Bitcoin is up about 25% while the other two coins are negative. Bitcoin seems to have solidified its standing as the digital asset of choice as its adoption begins to spread to the institutional world. Meanwhile, there are too many uncertainties still plaguing other crypto assets which makes them uninvestable for institutions for the time being.

So let's dive in and see what the current price action is telling us about Bitcoin.

After Bitcoin more than quadrupled off of its December lows, prices have been consolidating in a range between 9,500 and 13,000 since June. The high and low end of these ranges also coincide with key fibonacci retracement levels based on 2018's drawdown, making them logical places for prices to find support and resistance. This is exactly what we've seen in recent months as prices formed a descending triangle formation between these retracement levels and buyers defended the 9,200 - 9,500 zone several times.

Coming into the week, prices were at about 10,000 and trading at the lower boundary of the triangle formation. Since Monday, Bitcoin has plunged more than 20% to its current level, just below 8,000, violating the support ~9,500. It is typical to see continuation patterns like this one resolve in the direction of the underlying trend, which would have been higher in this particular case. When we see a bearish resolution from a bullish pattern like this one, it is usually a heads-up that sellers have taken control and are likely fueling a trend reversal in favor of lower prices. As such, we want to be patient and give Bitcoin time to carve out a new bottom as the chart has definitely endured some structural damage. Momentum hit oversold to confirm the recent breakdown and prices pierced their uptrend line from Q1's lows and are now trapped below their 200-day moving average for the first time since late March.

As the intermediate term trend has turned lower, we want to stay away from Bitcoin on an absolute basis. With that said, if you are a long-term investor or still want exposure to the space, Bitcoin is the clear leader among cryptocurrencies as it continues to steadily outperform its peers on a relative basis.

Here is a chart of the Ethereum/Bitcoin ($ETHBTC) cross, showing Ethereum making new record lows against Bitcoin within the context of a long-term downtrend. Litecoin doesn't look much better as it recently broke to fresh 52-week lows relative to Bitcoin and is not far off its record low from late 2017. The bottom line is despite the weakness on an absolute basis, Bitcoin is still the best house in a bad crypto-neighborhood. If you're going to own a cryptocurrency, why not at least make sure it's the leader?