Tracking Bitcoin's Price Action- Rebound or Capitulation? - Part 2

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.

14:59 29 January 2022

The first part of this two-part post would have made whatever remaining Bitcoin bulls out there heave a huge sigh of relief. Not taking the mickey out of the Bitcoin hopefuls here, but this has been one absolute, brutal sell-off.

 

It has lasted over 80 days now, in which time Bitcoin and other cryptocurrencies have taken a pounding. During this period, Bitcoin, in particular, has shed 50% of its value and its market cap has dwindled down from $1.29 trillion to $700 billion. And we're coming up on the 90-day mark, which some experts hope will bring in a much-needed respite from the unrelenting selling going on in the market.

 

Some are hinting at a change in trend, though. Bitcoin bulls, being Bitcoin bulls, are hoping for a 'v-shaped recovery'. You really can’t fault them for being so overly ambitious. You really never know what to expect with Bitcoin, though. A few more sessions of strong finish and calls for Bitcoin crossing the $100k hurdle would start to grow louder. 

 

From a realistic perspective, overcoming that ginormous mark sounds like a tall order at the moment. Think about it. The digital currency has to make a 3x move from the levels it's now reeling at. That's simply asking for too much, when the market is licking its wounds after the bloodbath and doing its best to limp into recovery.

 

Bitcoin still in Troubled Waters

But few technical analysts are sure Bitcoin is not out of the woods just yet. The price did stutter on its way up and found a stiff resistance that pushed it back down.

 

At present, Bitcoin is still very much languishing in a narrow range and certainly not immune from posting another lower low. Just one more round of panic selling could drive Bitcoin down to fresh lows, putting it under enormous pressure. The $30k foothold is critical and has to hold at all costs. Otherwise, whatever bullish sentiment is prevailing in the market right now will become irrelevant.

 

A decisive fall through the $30k level means Bitcoin can fall a lot lower, a weakness Bitcoin sellers would be itching to exploit to the fullest extent.

 

Remember the next support is a long way away at $20k.

 

The crucial $30k support-- immediate line of defense-- could give way, opening the floodgates for a large number of sellers to get in and push the price even further down. That'd be a crisis situation and Bitcoin would be gone for all money.

 

Let's walk through the charts, patterns and market data that predict difficult times ahead for Bitcoin.

 

• Rising Flag Pattern Presents a Bearish View

After enduring a 11-week long downtrend, BTC/USD seems to have managed to arrest the slide somehow. This short-lived rally, however, came on the back of poor volume and has done very little to boost market sentiment. This upside action, most likely to be a result of the short covering, seems to have formed a rising flag pattern, which has a bearish bias in a downturn. The flag's support could be tested again for a downside breakout, and, if it fails, we could see more traders enter the market with shorts which could set off a corrective rally. And that in turn could trigger yet another sharp slide dragging the digital token down to multi-year lows.

 

• Open Interest Gives a Bearish Signal

The bears gained immensely from last week's options expiry that saw Bitcoin crash through the critical $40k mark. This week will be no different, it appears, with nearly $2.3 billion worth option contracts set to expire this Friday. The sentiment in the options market is anything but bullish, if the open interest data is any indication. For example, there are $1.52 billion call options as against $760 million in puts, but the call-to-put ratio at 1.96 is clearly stacked against all the bullish bets.

 

• Chart Paints a Complete Head & Shoulders Pattern

The daily chart clearly shows that Bitcoin extended into a downslide forming a nice head and shoulders with its top at $690000 and neckline at $40000. For starters, this pattern marks the end of an ongoing trend and onset of a reversal, which means there has been a distinct shift in market sentiment from bullish to bearish. What is the price the H&S pattern suggests Bitcoin will sink to? Typically, with this pattern formation, the price comes down the exact distance between the top and the neckline, which would be $29000 in this particular case. So, the implied H&S pattern target puts Bitcoin on track for $11000. More trouble brewing?

 

That's precisely why analysts feel that the bellwether currency is going to be in a bit of a bother in the weeks to come.

 

Searching for clues as to where the market is headed next? Odds for Bitcoin regaining its bullish momentum are low unless buyers rush in and take control of the proceedings which is looking highly unlikely at the moment.

 

Their morale took a big blow when the bears kept selling through the $40000 key support level and managed to bring the price further down to roughly $33k. The minor bounce thereafter was a nice consolation though. Overall, the market sentiment looks largely gloomy and there's not much hope left amid participants that there'll be a sharp recovery from here.

 

There you go. That concludes our two-part series. As you might have seen, there are more than a few reasons to be bullish or bearish in the current market, depending on which side you are on. We’ll take a neutral view on what is likely to happen next though. We reckon the price movement is going to be largely choppy with a weak bullish bias in the short term until a clearer view or trend emerges. With the Fed policy meeting outcome due to come this week, traders and investors will do well to stay away from all the action and see the proceedings carefully.

 

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