Tracking Bitcoin's Price Action- Rebound or Capitulation? - Part 1

Is Bitcoin going to bounce back from here? Or will it capitulate and sink to lower levels?

17:48 28 January 2022

Is Bitcoin going to bounce back from here? Or will it capitulate and sink to lower levels? In this two-part series we take a technical analysis standpoint and try to make out some key things from what the charts and patterns are showing us.

 

It was late October, and crypto was on top of the world. Bitcoin, the number one digital token by market cap, had easily pushed past the $65k mark rising approximately 64% in a matter of 20 days-- quite a feat in Bitcoin's own standards.

 

It grazed the $60k mark for the first time in March 2021 and toyed with it again the following month. No sweat.

 

When it looked like Bitcoin would drift around in that region for a while and work through the gears to take out the $70k mark next, it fell sharply. It did come close to beating that mark but the price cannonballed along the way down and all the longs were caught. 

 

It was a classic case of false breakout at $60k. The bulls had to liquidate all their longs, which triggered a selling spree that took the market further down to $30k and thereabouts.

 

At that point nobody thought Bitcoin would go on to flirt with the $60k mark two more times the same year. But it did. Before the fear of a market crash could settle, Bitcoin rose again back to above the $60k mark, however, on the back of low volume. Not many were ready to sell. 

 

A lot of things started to happen in the crypto space. Few companies went out to seek exclusive crypto-specific venture capital funds and tasted success. A heavily produced crypto.com ad featuring Matt Damon debuted and caught a lot of eyeballs, providing a catalytic effect to a market that was already going insane. On its part, Bitcoin came close to surmounting the $70k peak. Not once. But twice. Two is a lucky charm for the bellwether currency, perhaps. Throwing caution to the wind, hordes of people rushed to take part in the crypto fad.

 

Everything was going well. But, in an anticlimactic manner, a downtrend happened. The psychologically significant $40k level, which many thought would prove to be a strong foothold for Bitcoin moving forward, caved in. And the rest is history.

 

As the market attempts to recover from this rut, the technical analysts have applied themselves to doing a postmortem on the damage done. They're keeping a close eye on the price action, seeing whether the behavior is congruent with their charts, indicators and all that.

 

Some of them are optimistic that a rebound is likely while some are clearly not in agreement predicting more pain for traders and investors.

 

We'll go over both the optimistic and the pessimistic cases and look to understand why they're holding such views.

 

Enumerated below are cases presented by technical analysts holding an optimistic view of the market.

 

Let's dive in.

 

1) Bitcoin moving up gradually, faces multiple resistances on the upside

The reduced volume in spot trading this week confirms that traders are far from convinced that the sell-off is over. It's quite natural for traders to be a touch circumspect in the wake of such a hideous meltdown. The price inching upwards could mean a lot of things: shorts getting covered, new traders entering the market trying to bottomfish. Bitcoin faced some severe pressure from sellers as it approached the $38k to $39k level but it has done remarkably well to hold firm and not slide under $35k for several sessions now.

 

It'd be interesting to see how the market behaves when the price tests the different supply zones and resistance levels on its way up and the key $29k-$33k support level on its way down.

 

2) RSI suggests a bullish response likely

The Relative Strength Indicator flashed an oversold signal on the 4-hour chart, suggesting there was a rebound on the cards. And it played out the same way with the price climbing up from $33k mark to $39k. The RSI levels on the daily chart are now affirming a short-term oversold condition, meaning Bitcoin can travel upwards from the current levels to test the $40k resistance. And if it pans out that way, Bitcoin could form a base around these areas for its next leg upward.

 

3) Tom Demark Sequence Indicator paints same picture

The famous Demark sequence indicator is adding credence to Bitcoin's case of a recovery from this steep decline. The 13-session countdown pattern is an indicator widely used to detect signs of exhaustion in an uptrend or downtrend and thereby the reversal. Demark's indicator suggests a short rebound is in the offing, but before that we might be seeing two more sessions where Bitcoin closes in the red.

 

As you can see, there are some really solid reasons to remain positive on Bitcoin's immediate term outlook. The main takeaway from the view presented by the above technical indicators is that a short-term bullish response could be on the cards. The $33k first line of defense was tested, and it held firm. Although it's a good sign, Bitcoin did encounter serious selling pressure roughly around $39k. Right now, the price is languishing in a narrow range trying to keep up. But it won't be long before it unleashes another trending move. In simple terms, the support underneath is working fine, and the immediate near-term resistance is proving to be a challenge to get over. It might be a little hard at the movement to say for sure it's headed higher, but the technical indicators confirm that the downside is limited, and the cryptocurrency is taking its time to mount a recovery.

 

In the next part, we’ll look at a few reasons why some technical experts think the market will continue to bleed.

 

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