In an interesting attempt to retest the downtrend line, Bitcoin shot up from near $8200 to $8500s in less than an hour. The chart above is based on the logarithmic scale for Bitcoin which has yet to be broken. A lot of new investors assume that we have already broken the downtrend line and Bitcoin (BTC) is now in the clear but this is far from the truth. For volatile assets like cryptocurrencies, a logarithmic scale is preferred by seasoned investors. It is easy to FOMO in when you already think the downtrend line is broken and Bitcoin is probably on a new bull run. However, on the logarithmic scale, a clear rejection from the downtrend line was seen but the fate of Bitcoin’s price for the new few weeks depends on whether it closes below or above the strong downtrend line.
Fear of missing out and general exuberance due to altcoin rallies aside, there is not much to suggest a bullish outbreak at this point. On the other hand, there is plenty to suggest a fall back to at least $6000 if not lower. The biggest indicator is rejection at the downtrend line. In addition to that, the RSI is already at overbought levels on both the 1D and 4H charts which suggest imminent downward action which could accelerate the fall and hence also confirming another short term bearish phase which would most likely be the beginning of the end of Bitcoin’s recent bearish cycle.
Bitcoin is currently trading within a rise wedge which is yet another sign of a bearish setup. A fall below the wedge may result in heavy selling which could push the price to $6000 or lower. Some analysts are chalking up this morning’s bullish volume to wash trading within exchanges. This cannot be ruled out when you consider that at the moment there is nothing much to suggest a breakout. Most analysts predicted a retest of the downtrend line on Sunday but recent events have accelerated that and the next few days could most likely see some profit taking, given the recent rallies.
I do not think it is a coincidence that we are seeing negative news today just when Bitcoin is testing the historical downtrend line. There is news of FINRA fining Tezos Cofounder, news on Telegram Ban from Russia, EU Parliament vote for more regulation on cryptocurrencies etc. These developments are not new if you take in account that every rejection at the downtrend line in the past has been accelerated by negative news or “FUD” if you like. That aside, I believe a retest of lower levels would convince most investors that Bitcoin has truly found a bottom which would also turn most bears into bulls and help Bitcoin start a new rally from there. The lower the price of Bitcoin goes, the narrower its trading range becomes which means it would require a lot less effort to break the downtrend line.