As you can see from the chart below, they had good reason to be bearish; bitcoin’s most recent move down took it to price levels last seen at the very start of the year. Since the peak in April at $64k, bitcoin has effectively given back all of 2021’s gains. This last push lower didn’t leave much in the way of support, with the next significant support levels between $20k and $22k.
However, $30k proved to be a much stronger level of support than many expected. What ensued was a steady stream of buying on gradually increasing volumes. The asset proceeded to post ten consecutive days in the green, taking it up to a new two-month high at $42,400 on July 30. In this unexpected show of strength from bitcoin bulls, around $1 billion in bitcoin short positions were liquidated, with over 90% of these being on the short side. Beyond the massive short squeeze, recent price action is important for several reasons.
- Firstly, it breaks a downtrend that’s been in effect since May. The move from $29k to $42k represents the first higher-high bitcoin has set since June 14. The June 14 high was followed by a lower-low at $31.5k on June 21 and a resumption of the downward trend.
- Second, this move has seen bitcoin’s price crossing three important daily moving averages from below, the 20, 50, and 100. At the time of writing, the 20-day has also crossed above the 50-day, with the 100-day and 200-day sitting at $39.6k and $44.6k, respectively.
- Third, the 10 green days we saw at the end of July were significant enough to also register on the weekly chart. The close of July’s final weekly candle sets a weekly higher-high relative to the weeks of June 7 and June 14. It also means that bitcoin has held the 50-week moving average by changing course on the week of July 19.
Bitcoin has been consolidating since the recently posted July 30 high, with four red days in a row and a slight bounce on August 4 that stalled at the 50-day MA. The 20-day moving average, currently at $36k and rising, could be the next level to be tested if the August 3 low at $38k fails to hold. Below that, we have the 50-day moving average, currently just below $35k.
However, more important than all the above levels is the 20-week MA (currently at $43.5k), and the 50-week MA (currently at $33.5k). Bitcoin is currently trading between these two important moving averages and its next move will be highly relevant to the path the digital asset takes throughout the rest of the year. Does it have enough momentum to rally further and test the 20-week? Or, do the bulls need to regroup and allow bitcoin to set a lower-high at the 50-week MA, before making a bid for that all-important 20-week MA?
The Bottom Line
As positive as this recent price action has been, we’re dealing with an asset that’s been trending down since April and is still 40% off its highs. The last few weeks of trading have been highly bullish and have managed to change the technical picture enough so that a reversal at these levels is a distinct possibility.
However, the fact remains that all we have at the moment is a daily higher-high (and what appears like a higher-low forming) and a weekly higher-high. These are encouraging signs but by no means proof that bitcoin is about to reverse course. The fact is that the bulls have a lot to prove to get BTC anywhere near to its former highs. As we encourage all of our clients at HYCM, the use of stop-losses and prudent risk management are advised, particularly if you’re trading this asset at the shorter timeframes.
by Giles Coghlan, Chief Currency Analyst, HYCM
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