The bitcoin market has recently woken up from a long slumber, putting traders in the driver’s seat. This is a message from experts studying chart patterns who now see strong chances that Bitcoin will drop to $14,000 or lower.
Last week, the main cryptocurrency fell 22% to a two-year low of $15,600 as the FTX crash damaged investor confidence. The decline marked a downward pause after several months of horizontal or sideways trading above $18,000, opening the door for notable selling.
“From a technical standpoint, bitcoin is currently down below $18,000, which has been a support area for the past few weeks. The next levels to watch out for are 2019 highs of $13,500 and $12,500 (Q3 2020 high),” Morgan Stanley strategists wrote in a note to clients on Friday.
Breakouts or breakouts of the range usually result in a marked decline or rally. According to the theory of technical analysis, an asset accumulates potential energy during consolidation and this energy is released in the direction in which the range eventually breaks out. The longer the consolidation, the greater the accumulation of energy and movement after the breakdown / breakdown. Therefore, experienced traders avoid trading against a breakout or range breakout.
“First, think of a consolidation range as a spring coiled over time and full of potential energy. Each successful bounce from support and rejection from resistance adds more potential energy,” Delphi Digital analysts said in a note sent to subscribers on Friday. “When prices eventually break out of the range, the momentum can be extremely strong, like the initial unwinding of a coil spring. »
Technical models can and often fail. However, Bitcoin’s latest range crash is likely to bring more pain as adverse macro conditions and the collapse of FTX are likely to put pressure on investors’ risk appetite.
“This crash came with one of the worst crypto catalysts that has taken a toll on investor sentiment and asset prices. Combine your own crypto-catalyst in the FTX-Alameda explosion with the still bleak macro backdrop that hasn’t changed significantly and the ongoing downturn is the path of least resistance at this juncture, not a reversal,” the Delphi team noted, citing support between $14,000 and $16,000.
Bitcoin has come out of an extended consolidation. (LLC “Momentum Structural Analysis”)
Michael Oliver, founder of Momentum Structural Analysis, said that Bitcoin’s flight through the lows of the range may have started the process of a bottom, although the market may not find a bottom anytime soon.
“This is the intended main action [above $18,000] could be a harbinger of a downtrend, but slippage through the lows of the range is likely to be next in any downtrend. It’s started,” Oliver said in a weekly note.
“Based on various indicators, we believe that there will be a decline, and most likely this market will not find an effective bottom until December. In the meantime, let it break,” Oliver added.
Bitcoin has changed hands at $16,800 at press time.