Bitcoin Update: The Roadmap Back to $5,800

On our December 7 update, we mentioned that Bitcoin (BTC/USD) may bottom out between $2,800 – $3200. The price action over the last few days has given us confidence that our call is correct and that a short-term bottom is in. Bulls have held their ground as they eagerly bought any dip that brought the market close to $3,000. As a result, Bitcoin rallied after generating a fresh 2018 low of $3,121 on December 15.

Nevertheless, now is not the time get excited because Bitcoin is not out of the woods yet. A short-term bottom may be in but it doesn’t necessarily mean that the market will ignite a bull run. On the contrary, we expect Bitcoin to range trade for months before it can reverse its trend. In this article, we explore several bullish possibilities in the roadmap back to $5,800.

Strong Bullish Breakouts on the Lower Timeframe

Recent price action has given BTC a new lease in life. Just a few days ago, bears were calling a massive drop to $1,800 as the market struggled to stay above $3,200. On December 17, however, bulls decided to silence these bearish calls by breaking out of a falling wedge on the 4-hour chart.

Bitcoin falling wedge breakout

The falling wedge breakout was pushed by heavy volume. During that stretch, Bitcoin printed volume that’s over 200% of its 4-hour average.

This breakout was followed by another bullish price movement. BTC broke out of the large inverse head and shoulders pattern on the 1-hour chart to sustain its bullish momentum.

Bitcoin inverse head and shoulders breakout

With these two breakouts, Bitcoin has taken out our range midpoint of $3,732. It is now in position to climb to the range high of $4,340.


Bitcoin in position to climb to range high

From here, things get interesting as we create scripts how BTC/USD may take back $5,800.

Possible Inverse Head and Shoulders Breakout

If Bitcoin is to break out from the range high of $4,340, it must first retrace to give technical indicators a chance to cool off. In addition, the correction gives bulls the opportunity to establish a solid base to keep the breakout sustainable. The question is where will Bitcoin retrace?

We can see two possibilities.

The first one is the formation of a higher low at the range midpoint of $3,732 and the emergence of an inverse head and shoulders pattern on the daily 4-hour. This is our preferred setup as this tells us that bulls are coming to life.

Bitcoin inverse head and shoulders

A breakout from an inverse head and shoulders pattern is a clear technical reversal that can generate the momentum to rally to $5,800. We’ve seen this script play out recently in NEM (XEM/BTC). So far, LTC/BTC is following the same pattern.

Possible Double Bottom Pattern

Another possibility for a reversal is a double bottom pattern. This script has been spotted in numerous altcoins recently such as TRON (TRX/BTC) and Ambrosus (AMB/BTC).

Bitcoin double bottom

While this is not our preference, a double bottom breakout is still a technical reversal. It strongly suggests that prices below our range low of $3,121 will be swiftly rejected. More importantly, it gives Bitcoin a chance to establish a solid base at the $3,000 level. This new base of buyers will be instrumental in the expected range high breakout and the potential climb to $5,800.

Bottom Line

The recent bullish breakouts on the lower time frames have given us confidence that Bitcoin may touch $5,800 in the coming weeks. With the market trading above the range midpoint of $3,732, it is poised to ascend to the range high of $4,340 and possibly take it out.

Nevertheless, Bitcoin must pullback before it can breach $4,340. In terms of retracement, we can see the possible formation of an inverse head and shoulders or a double bottom pattern. Breakout from one of these patterns enables the market to trend higher. This is our roadmap back to $5,800.  

 

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.