Bitcoin (BTC) has climbed above the 50 Day EMA and it has suddenly got the bulls very excited. We have seen some strong shakeouts to both sides and we may yet see some more but a lot of traders are wondering what is next for Bitcoin (BTC). Was this a real rally or was it a fake rally and does it mean the bulls are back in control? Well, first of all, the manner in which the price shot up above the 50 day EMA was very bullish but there is more to it than that. Sure, the price bounced up strongly from a key support when it closed yesterday but we have to look at why the price might have done this. If the bulls are still in control and there is still so much buying interest in the market, why did it not protect BTC/USD from declining below the 50 day EMA to a four digit price?
This question answers itself but let us explore why this might have happened. Inflection points like these where the market can be expected to go through a trend reversal is where most retail traders lose money and where market makers make their most money. Here’s how it works. A lot of retail traders are in the hope business. They enter a position hoping something would happen. The market makers know this and they exploit their hopes and end up running their stops. The price does what it is supposed to do eventually but it ends up shaking out aggressive traders. In this case, we had a lot of bears expecting the price to go down. So, the market makers decided to shake them out because the casinos cannot afford to pay such a large number of winners. If they did, they would be out of business.
So, what is really happening on with Bitcoin (BTC)? If we take a look at the 1H chart, we can see that it staged a fairly strong rally to the upside that has broken a short term downtrend. This is likely to have hurt a lot of aggressive bears and the strong green candle just above the 50 EMA on the 1H chart shows how the price shot up soon as it broke this downtrend. The bears will now be fighting for control and it is likely that they will win again but this move is likely to have unnerved a lot of traders.
RSI on the 1H chart is close to topping out and it indicates that this fake move to the upside in BTC/USD is likely to come to an end anytime now. This move is nothing more than short term manipulation that has run some stops to both sides. If you think about it, it’s a genius play. They shook out the bears that were looking for a big payout had the price declined straight to $7,200 and now they have trapped the bulls that are waiting for a miracle to happen.