Bitcoin Update: Breakout Incoming

Bitcoin (BTC/USD) has been bleeding out ever since it failed to take out resistance of $4,200 on December 24, 2018. Slowly but surely, price faded along with volume and momentum. Relief bounces have been few and far in between. Under such conditions, bears are once again making noise, screaming that the bottom may be found at the monthly support of $1,800. That’s a big fall from where we are now.

While this scenario can be nightmarish to any retail investor, now is not the time to panic sell. On the contrary, it may be the best time to buy, especially since the market is showing signs of reversal. These are the signs that we’ll explore to help you understand why a Bitcoin breakout is incoming.

Volatility Index Touching Lows

The Bitcoin Volatility Index is a good measure of the degree of Bitcoin price compression or expansion. The higher the number, the greater the expansion. For instance, the index printed a high of 10.93 on November 25, 2018. On that day, Bitcoin traded between $4,120 – $3,430. That’s a range of $690 in one day, which is something that we haven’t seen for weeks.

Since then, the market’s volatility slowly dissipated. It is currently moving above 1.00. This area seems to be the support of the index. In other words, we are expecting the return of volatility soon.

BTC Volatility Index

Volatility often appears during big moves like breakouts or breakdowns. This enables a market to convincingly breach a key support or resistance.

Now that we know that a big move is incoming, the next question is the direction. We look at the price action and technical indicators for clarity.

Market Structure Looks Bullish

In a recent article, we reported that Bitcoin is printing a falling wedge on the daily chart. This pattern is bullish with a 70% chance of breaking out to the upside. The falling wedge is still valid, especially now that the market is approaching its apex.

Interestingly, the apex appears to be situated close to $3,250. This is close to the area where Bitcoin found support on December 15, 2018. Should the price dip into this high demand level, we can expect Bitcoin to have a very good chance of taking out the diagonal resistance and break out of the wedge.

Daily chart of BTC/USD

This all sounds exciting but for this scenario to materialize, bulls must first show that they’re ready to defend $3,250. Fortunately, technical indicators are in their favor. First, the daily RSI is trading close to oversold territory. It will likely be oversold once the price drops to $3,250.

Also, volume has become significantly anemic. This means that selling pressure might be easing up. If bears are losing interest to sell at current levels, they won’t likely have the heart to sell at a high demand area. This will make it easy for bulls to preserve the support and establish a double bottom pattern.

BTC/USD Possible Double Bottom

This double bottom pattern might just be what Bitcoin needs to ignite the process of a trend reversal. For now, we’ll settle for a bullish breakout.

Bottom Line

Bitcoin has been slowly bleeding out for weeks as the trading range continues to compress. Consequently, we are approaching a point of massive expansion. The only question is the direction. After closely examining the charts, it appears that a bullish breakout is more likely to be incoming than a bearish breakdown.

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.

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