Why Bitcoin Could Face a Crossroads at $3k

After making new yearly lows, Bitcoin has found temporary support at $3,300. The bulls have been continually rejected by resistance at $3,500. When the previous yearly low acts as new resistance,markets typically react negatively. After Bitcoin fell to a low of roughly$3,200, there has been a series of small reaction rallies which are most likely due to short sellers taking profit. The continuation of new yearly lows will create additional volatility in both directions.

During the 2017 bull market, the $3,000 price level served as resistance for 8 weeks. Although this resistance level was not a major setback in Bitcoin’s upward momentum, it is still worth considering. In addition, the EMA(200) is aligning perfectly with the $3,000 support level. These two factors are creating a crossroads for Bitcoin in the coming weeks. From a macro perspective, $3,000 may be interpreted as another turning point for the bear market, much like $6,000 was.

If price declines to $3,000, HFT botsmay create a temporary price bounce due to the two indicators previously mentioned. This situation is possible, but there is not enough evidence to place a long position with conviction.

Unfortunately, the alternative scenario is much worse for the bulls. If Bitcoin breaks straight through $3,000, theHFTs will immediately switch from a buy algorithm to a sell algorithm. This maypush prices down at a much faster rate than expected. If $3,000 is purged inthe next week, prices will likely experience another substantial decline to ashort term target of $2,800.

When analyzing Bitcoin from a daily perspective, it is likely that we will see a large move fairly soon. Currently, the charts are presenting a confluence of bearish indicators. Descending volume indicates that the bulls may be running out of steam as they continually fail to rise above resistance at $3,500. Additionally, Bitcoin was traveling in a pennant formation and finally to broke to the downside. Per classical charting theory, “The price target for pennants is often established by applying the initial flagpole’s height to the point at which the price breaks out from the pennant.” Once the trend breaks the pattern, price is likely to continue in the same direction of the initial move out of the pennant. In this case, the initial downward flagpole would create a price target of $3,200, once again aligning with the previous low. Lastly, the trend is nearing the end of a textbook head and shoulders pattern in which a downward move is likely going to follow.

It may be entertaining to make long-term price predictions, but when analyzing Bitcoin traders should keep an open mind and play the trend range by range. Increasing volatility within the trend is creating a gunpowder-like environment so drastic possibilities are evident in either direction. As of now, there is no evidence in the charts which would suggest an immediate trend reversal. However, it is concerning that bearish sentiment is becoming elated. Hypothetically, a whale could place a large buy order and raise Bitcoin’s price above several resistance levels. At the end of the day, markets are irrational and psychological cycles take a long time to play out. Above all, growing bearish sentiment is not enough evidence to take along position. Nevertheless, unidirectional exuberance is always important to consider when evaluating a macro trend.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers on the recent state of the cryptocurrency market. The author of the article trades cryptocurrency.

Charts are from tradingview.com