Bitcoin (BTC) had two major slumps within less than a week. While the first crash caught most investors and traders off guard, the second one was very much predictable. The above 4H chart for BTC/USD shows how the first crash happened and why it was not as surprising as many people think. The period on the chart labeled as “D” refers to the drop that might have been hard to time. The RSI was relatively overbought at that range but the price could still have gone up. However, when the price fell and entered a consolidation in the period on the chart labeled as “RSI Bear Flag”, it was too obvious to see a drop. The RSI formed a very obvious bear flag and it was expected that the price is going to drop sooner or later.
There are two types of investors in this market. The first group comprises of traders and the second group comprises of hodlers. Most of the hodlers are already hodling at a loss with the mentality that they are either going to sell either at a profit or let the price go to zero. So, when the price crashed, it is unlikely that most of these investors sold as they do not like to follow daily price action. However, the traders who trade frequently instead of hodling had to know in advance that this drop was coming. This means that they were prepared to dump before a drop which for all we know could have taken the price to $1,000 in one go. So, there is a high probability that most of these traders have already dumped most of their coins by now.
It did not make much sense for them to have held back to dump their coins at a later stage because the capitulation phase as we have seen in the past is very quick and intense. These traders had to know that they may not get a second chance and the price could fall all the way to $1,000 in one go. Now, without going into any technicals, a lot of people are prepared for the next drop if there is one. Even those that believe that the price could drop to $1,000 also believe that it is going to rebound strongly from there. So, what does it mean? It means that the guy selling to you now knowing full well that the price is going to rise soon afterwards is a sucker which brings us to our next question. How many suckers do you think are left in the market by now? The people who are buying here have iron hands. They do not care about sentiment. The weak hands are already out of the game by now, but let’s set that aside and analyze the technicals.
The chart above for BTC/USD shows how the recent slump compares to the previous one. As we can see, BTC/USD formed a bear flag on the RSI after the first drop. When the bear flag was fully formed, the RSI broke below it as the price crashed hard for a second time. After that the price started to rise and the RSI entered a similar formation as before. Many investors initially thought that the same scenario is about to be repeated again. The RSI was going to form another bear flag in the same manner as before. However, when it reached the top of the bear flag, it broke above it and invalidated the bear flag. This was a major relief for most hodlers who did not want to see another drop. However, it still did not mean that the correction was over.
Fortunately for Bitcoin (BTC) bulls, we have now a clear bull flag on the 4H RSI for BTC/USD. This bull flag could result in a bullish breakout anytime now. However, I do not expect any consequential moves before Monday. That is because all that we see on the BTC/USD chart has little to do with Bitcoin (BTC) and more to do with interconnected markets i.e. the forex market and the stock market. A lot of people used to think Bitcoin (BTC) follows the price action of Gold but we know now that it is not the case. Gold has been rising the past few days whereas Bitcoin (BTC), EUR/USD and the stock market have been falling. The bull flag seen on the RSI for the above chart is a positive development for the bulls but it is important to realize that Bitcoin (BTC) is not going anywhere without the blessing of the stock market.