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Buy the Dip or Ditch Bitcoin After Tesla Changes Tune?

Bitcoin prices are sinking on news that Tesla will no longer accept the cryptocurrency as a payment option. Here's where support comes into play.

Tesla  (TSLA) - Get Tesla Inc. Report CEO Elon Musk stirred the pot on Wednesday night and that volatility has spilled into Thursday’s trading session.

While Musk still comes across as a fan of cryptocurrencies, he tweeted that Tesla will no longer accept bitcoin as a form of payment.

However, he stated that the company will continue to hold bitcoin on the balance sheet. It’s an interesting take for a company that just recently began accepting payment in the form of bitcoin.

He said, “Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emission of any fuel.”

To little surprise, that caused a big spill in bitcoin prices, which closed lower by 13% on Wednesday and fell as much as 7.5% on Thursday.

So far though, those losses have been curbed to just 1.5%. For Tesla’s part, the stock is down about 3% on Thursday and getting into some of the key support levels I discussed earlier this week.

This time though, let’s look at bitcoin.

Trading Bitcoin

Daily chart of Bitcoin.

Daily chart of Bitcoin.

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While ethereum, dogecoin and other altcoins and cryptocurrencies have been surging to new highs, bitcoin has been a notable laggard.

Granted, the cryptocurrency just hit a new all-time high last month when Coinbase  (COIN) - Get Coinbase Global Inc Report came public, but it’s been struggling for upside momentum over the last few weeks.

However, when bitcoin hit new highs on April 14, it reversed and closed lower on the day. Including that day, it fell in 10 of 12 days before finally bottoming near $47,000.

On its current pullback, bitcoin again found its footing near the $47,000 area. This time though, the 21-week moving average acted as an additional layer of support.

From here, let’s give bitcoin a day or two to see if it firms up. If it does, we’ll want to see some type of rotation to the upside — like a daily-up rotation over the prior day’s high.

If we get that, we may be able to get some sort of rebound back up toward the $55,000 area and the 21-day moving average.

For now though, the $58,000 to $60,000 area remains as stiff resistance.

A break of Thursday’s low at $45,700 opens up the $40,000 to $43,000 area, as well as the 200-day moving average. Perhaps this larger dip would allow for a better buying opportunity, but right now, we’re at least getting a nice reaction off current support.

Let’s give bitcoin a day or two to see if it can hold the lows and rotate higher.