Rally Fatigue? Low Bitcoin Volumes Could Cap Upside

Bitcoin prices are at their highest ever, but there may be a chink in the cryptocurrency's armor.

Just a week ago, the bitcoin-U.S. dollar (BTC/USD) exchange rate hit lows near $5,500. Then, by Friday, prices were flirting with fresh record highs around the $8,000 mark.

With bid tone remaining intact over the weekend, bitcoin rose to an all-time high of $8,101.91 around 20:00 UTC yesterday, as per CoinDesk's Bitcoin Price Index.

However, while the $2,500 rally is impressive, data from CoinMarketCap indicates the move higher from $7,853 (Nov. 17 open price) lacks substance, as trading volumes have steadily declined over the last three days.

Struggling volumes

The above chart shows:

A clear divergence between the rising prices and trading volumes. Volumes did pick up after Nov. 14, but topped out two days later. Meanwhile, prices continue to rise and clocked record highs yesterday.
Furthermore, trading volumes have stayed well below the Nov. 12 high throughout the $2,500 rally from the recent lows near $5,500.
A low volume rally is not necessarily an ominous sign, but could be an indication of overstretched valuations: i.e. investors are reluctant to invest fresh capital above $7,800 levels. Further, the Google search volumes have seen an anemic rise, perhaps validating that argument.

So, should we expect a corrective pullback?

The technical charts favor further upside in prices, but signal the potential for a pullback to $7,300 levels if prices break below $7,900 today.

As of writing, BTC is trading at $8,035 levels. As per CoinMarketCap, the cryptocurrency has added 3.4 percent in the last 24 hours.

4-hour chart

The above chart shows:

Bull flag breakout
Bullish 50-MA and 100-MA crossover
The relative strength is beginning to curl up again, but stands very close to the overbought region.
Bull flags (named for their "flag and pole"appearance) occur during strong uptrends. They are a bullish continuation pattern: i.e. an upside break signals resumption of the rally.

On the chart above, an upside break/bull flag breakout has been confirmed, meaning the doors are open for a rally to $10,393 (target as per the measured height method: i.e. pole height added to breakout point).

However, as mentioned above, the breakout lacks substance due to dropping volumes. Additionally, bitcoin is already at record highs and overbought as per the weekly and monthly RSI.

View

The signs of bull market exhaustion detailed above indicate heightened odds of a corrective pullback. A break below $7,900 would open doors for a drop to $7,200 (10-day MA).
On the other hand, a move above $8,100, if accompanied by a pick-up in volumes today, would validate the bull flag breakout and could yield a rally to $10,000 levels over the next week or two.