Bitcoin (BTC) Could See Another Liquidity Hunt Before The Big Crash

Bitcoin (BTC) has been trading sideways for a while but yesterday it made a big move to the upside that stopped out most retail traders looking to ride the price down. This move pushed the price past the $7.4k level but it was soon followed by a red candle that effectively erased that entire move. We have discussed this in our analyses before that such liquidity hunts may continue to occur in the future and why traders need not to get too excited about them until there is follow through. The recent dead cat bounce is a perfect example of why it is dangerous to FOMO into such bounces. 

At the moment, BTC/USD is resting on a strong support at $7,138. This level is expected to be eventually breached but the fact that the price has respected it so well has increased the probability of another dead cat bounce. We have previously seen that H&S patterns on BTC/USD rarely play out so cleanly. A symmetrical crash below $7k would be quite surprising because that is rarely how it happens. The most probable scenario is that the market makers will use this opportunity to shake out more retail bears and trap in more bulls making them believe the price is about to shoot towards $8,000.

The daily chart for BTCUSDLongs/BTCUSDShorts shows that the price of Bitcoin (BTC) could pump again which would most likely see this ratio rise past the 1.618 fib level. If we look at how BTCUSDLongs/BTCUSDShorts traded around the 1.272 fib level we can see that it actually rallied past that level and then retraced below it. This is how it usually happens because most traders are quite predictable. The market makers and whales have been using this against mainstream traders since time immemorial. 

At the moment, BTC/USD risks a decline below $7,138 but if the price breaks the existing range and starts trading north of $7,300 the near-term outlook would change and $8,000 would be on the table again. That being said, it would have to be a sustained rally and not a pump similar to the one recently seen. BTCUSDLongs is currently at an all-time high which should serve as a warning to the overly optimistic traders in the market. However, the fact that there is still fear in the market as indicated by the Fear and Greed Index means that it is not a good time to be overly bearish either.