Bitcoin Price Eyes $4,200 as the Bulls Show Greater Conviction

Bitcoin’s price returned above $4,000 on Wednesday, looking poised to revisit the December highs and challenge the recent downtrend. Even a decent run north at current levels could signal a trend reversal for the leading digital currency after several months of anguish.

BTC/USD Update

After experiencing a sharp pullback overnight, the bitcoin price rebounded just as quickly Wednesday morning. In the process, it avoided the dreaded ‘bull trap,’ which describes a false breakout from a declining trend line. While it’s still too early to determine whether bitcoin has turned a corner, recent price action suggests buyers are still in play.

The leading digital currency traded as high of $4,066.30 on Bitfinex. It was last seen hovering north of $4,035, having gained 1.1%. The hourly relative strength index (RSI) implies positive momentum after running into overbought territory during the height of the rally earlier in the week.

Trade volumes have moderated in the last 24 hours after reaching their highest levels in about ten months. Nearly $9 billion in BTC changed hands on virtual exchanges on Wednesday, according to CoinMarketCap. That’s significantly higher than the 2019 average.

Has Bitcoin Bottomed? A Closer Look at the Bullish and Bearish Cases

Activity in the derivatives market has picked up in the last 48 hours. In terms of exchange-based volumes, BitMEX processed 16% of total BTC trades. Actual bitcoin volumes are likely much higher than what’s reported on virtual currency exchanges. It is estimated that over-the-counter trading is just as big as the exchange-based markets. As Hacked recently reported, “private bilateral contracts” have also increased in popularity over the past six months as institutional investors continue flocking to crypto.

Hacked predicted the bullish breakout before it happened. See: Crypto Breakout Coming? Volume Indicators Say Yes

Bulls Eye $4,200

The $4,200 price point has become a major inflection point for bitcoin. It not only represents the high from late December, but also the 15-week moving average through early February. A move above $4,200 could pave the way for a sustained rally back toward $5,000 and eventually $5,500. The path forward is paved with obstacles, but it’s the latter price point ($5,500) that could negate the long-term downtrend.

For derivatives traders, $4,200 is important for one other reason: it represents the strike price of a fairly sizable three-month call option by a firm named QCP Capital. Basically, the counterparty to this trade will earn a hefty premium if bitcoin exceeds that level when the contract closes. Although the size of this trade – equivalent to 250 bitcoins – is tiny compared to the broader market, it suggests traders are keeping a close eye on the December high. More on this story: Bitcoin and Derivatives: Why $4,200 is So Critical.

Not everyone is convinced that the latest breakout attempt will amount to anything. According to Alex Sunnarborg, a founding partner of crypto hedge fund Tetras Capital, bitcoin could still be headed for new lows in the near future.

“Calling [the bitcoin bottom] is very difficult,” Sunnarborg told Forbes. “That’s part of the reason I’m really thankful that we’re in the position we are right now.” More from CCN: Crypto Expert Warns Not to Trust the Bitcoin Rally.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi