How Bitcoin Could Break to New Lows (And How to Avoid It)
Bitcoin prices have not been excluded from the recent selloff.
While the S&P 500 is working on its third straight weekly decline, bitcoin is trying to stave off its third straight weekly drop.
Cryptocurrencies turned out to trade well in anticipation of high inflation, but it was likely the correlation with high-growth stocks and risk assets that drove the rally.
Bitcoin prices exploded after the covid-19 sell-off in 2020, but have since evolved as growth stocks have.
Prices fell 75% and bottomed out in mid-June, just as many growth stocks did earlier this summer. Now bitcoin has moved lower again and some investors fear that a painful crypto winter could be on the horizon.
Last week, bitcoin broke below $20,000, but found its footing shortly after. Now that it’s hovering around this level – and currently just below it – let’s take a closer look at what could be on tap.
Trading with Bitcoin
Daily chart of bitcoin.
Chart courtesy of TrendSpider.com
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Earlier this month I noticed how bitcoin was trying to break out above the $24,500 to $25,000 zone. If it could do that, it would put the $29,000 to $30,000 range in play. But if it lost its 10-day and 21-day moving averages — active support — it set up more potential downside.
The latter played out, and now traders have seen these active supports turn into active resistance.
This is a good example of why traders need to be flexible and willing to shift gears. Either they have to get out of their long positions when the script turns, or they have to be willing to go short.
On August 19, bitcoin prices fell 10% on the day, sending it below its 50-day moving average. From there, it formed a bear flag pattern, which broke to the downside. Now it is set up in another bear flag pattern.
The bulls don’t want to see bitcoin break $19,500. If it does, it will push bitcoin below the recent low, while keeping it below the key psychological level of $20,000, as well as the previous record high of $19,660.
That would also put it below the August low, technically triggering a monthly down rotation. Buyers have emerged around $19,000 this summer, but if we get a proper flush to the downside, don’t be surprised if bitcoin revisits the low near $17,600. Below that and new lows are on tap.
So how can bitcoin go higher?
On the upside, it’s easy: It needs to retrace $20,000 and the 10-day moving average. If bitcoin can do that, it could make a push up to the 21-day moving average and potentially the $22,500 area.
