Market Wrap: Bitcoin in pullback mode as regulatory concerns rise

Bitcoin is declining as regulatory concerns rise; ether is holding support.

Bitcoin extended its pullback on Tuesday as buyers continue to take profits from the $40,000 resistance level. The cryptocurrency was trading around $38,000 at press time and is down about 4% over the past week. Ongoing in the U.S. and China have kept some bitcoin buyers on the sidelines, with lower support seen around $34,000 to $36,000.

“We expect the pullback to mature in one to two weeks near the 50-day moving average around $34K, after which bitcoin is likely to clear $42.6K for a revised upside target near $51K,” wrote Katie Stockton, managing director of Fairlead Strategies, in a Monday newsletter.

Latest prices

Cryptocurrencies:

• Bitcoin (BTC) $38,077 -3.08%

• Ether (ETH) $2,468.5 -4.88%

Traditional markets:

• S&P 500: 4423.3, +0.82%

• Gold: $1810.4, -0.13%

• 10-year Treasury yield closed at 1.181%, compared with 1.173% on Monday

Ether in the lead

Ether, the worlds second-largest cryptocurrency by market cap, has broken out of a two-month consolidation relative to bitcoin. The ETH/BTC ratio faces initial resistance near 0.07, and a decisive break above that level could yield further upside towards 0.08.

ETH could find support around $2,300 to $2,400. “If ETH successfully holds above support, we expect upward momentum from the current move toward a proof-of-stake Ethereum 2.0 to push for a retest of the all-time high (around $4K),” wrote QCP Capital in a Telegram chat.

Some ether bulls are also enthused about the Ethereum blockchain‘s upcoming London hard fork, an upgrade that’s expected to reduce the networks net issuance of new units of the cryptocurrency.

“We are less optimistic about BTC and we think that upside on BTC might be capped in the near term,” QCP wrote.

Bitcoin futures contango

“Last weeks short squeeze led a large contango to open in the futures market, but as bitcoin failed to break out from its range the contango has declined in recent days,” wrote Arcane Research in a Tuesday newsletter.

Contango is a term used to describe bullish arbitrage, which occurs when the bitcoin futures price is higher than the spot price. Since April, bitcoins contango has narrowed as bullish sentiment waned.

“The CME contango remains substantially below the unregulated exchanges, suggesting that the institutional investors remain more cautious than the crypto native traders,” Arcane wrote.

The growing contango could also suggest an accumulation of leveraged long positions, albeit slightly lower over the past week. “Be wary of potential long squeezes if bitcoin fails to find support above $37,000,” Arcane wrote.