Bitcoin (BTC) has been through an extensive bear market that lasted a whole year. Most investors in this space are not used to such prolonged periods of downtrend, not after the late 2017 rallies when cryptocurrencies would rise by 10% or higher every passing day. These days there is a rally followed by a balancing act that sees the price close to where it was before the rally started. So practically, there is no decisive movement, neither to the upside nor to the downside. The last few months have been brutal for BTC/USD. Soon as the price broke below the 21 Month EMA, we saw it decline sharply to a new yearly low just above $3,000. A lot of investors and analysts expected Bitcoin (BTC) to test $3,000 and fall slightly lower to ultimately test the resistance turned support around $2,900.
The fact that so many people expected it to happen is one of the reasons it did not happen. However, there is more to it than that. Bitcoin (BTC) tested the 200 Week MA and bounced strongly off it marking the end of the correction. This did not happen in the case of BTC/USD alone. We saw the same happen recently in the stock market. The S&P 500 declined to the 200 Week MA and bounced strongly off it. It has currently formed its second green weekly candle after rallying off the 200 MA. The point is Bitcoin (BTC) does not make most of its moves on its own. In fact, it looks up to bigger markets for direction. If we look at the monthly chart for BTC/USD, we can see that the price has bottomed out in the last three months.
This is seen in the form of the three green bars visible on the VIX Profile. For the first time since the beginning of the bear market we can see these three consecutive green bars on the VIX Profile. This is a strong sign that the bear market has come to an end and BTC/USD is now preparing to begin a new cycle. It may seem obvious to a lot of people in the grand scheme of things. A lot of investors in this market even the temporary bears are convinced that ultimately the price is supposed to begin a new cycle. However, it all comes down to the timing of this cycle. There is still many people of the view that BTC/USD has not yet found its bottom and it has to fall somewhere between $2,400 and $1,800 to do that.
Bitcoin (BTC) price action is heavily influenced by EUR/USD and the S&P 500. We have already explained the similarities in price action with the S&P 500 and how both have bounced off their 200 Week MA. Let us now consider Bitcoin (BTC)’s correlation with the Euro (EUR/USD). The monthly chart for EUR/USD shows that the EURO is trading in a strong ascending channel that has held many a time in the past few years. EUR/USD first reached the bottom of this channel around the beginning of 2017. This was the time when Bitcoin (BTC) began its aggressive rally.
The price reached the top of this channel towards the end of 2017 which was the time when Bitcoin (BTC) topped out. EUR/USD once again reached the bottom of this channel in October, 2018. It has tested the trend line support consecutively for three months and held it which explains the three months of bottom formation for BTC/USD. All of these indicate that the price of Bitcoin (BTC) has already bottomed out and is expected to rise in the months ahead as the rest of the markets recover.