Crypto Price Analysis: Bitcoin Reversal Still Intact

On our February 20, 2019 update, we asserted that Bitcoin’s (BTC/USD) reversal is right on track after taking out multiple resistances. We also emphasized that Bitcoin will face a very tough resistance at the $4,300 price level on Bitfinex. On Sunday, February 24, we got confirmation of this call as Bitcoin was emphatically rejected at this price level. The market lost over 9% of its value overnight to the delight of bears.   

The February 24 drop would have likely sown seeds of doubt to many retail investors. However, the dump was expected. What we did not expect was the bullish reaction of market participants after the dump. This is only one of the several reasons why we believe that Bitcoin’s reversal is still intact.

Bullish on the Shorter Timeframes

Not a lot of people are talking about this, but Bitcoin has made a technical reversal on the shorter timeframe. It took out resistance of $3,800 on Bitfinex and triggered an inverse head and shoulders breakout on the 4-hour chart. The breakout was pushed by heavy volume. It was also followed up by a strong rally to $4,200. This is a textbook pattern breakout and reversal.

Bitcoin reversal on the 4H chart

If that’s not enough for you, the pullback after the breakout rally is also part of the reversal process called as a throwback. Usually, the throwback drives the price down to the new support, which is $3,800 in Bitcoin’s case. The sentiment remains bullish if the price stays above the support, so that the market can establish a new base of buyers. This is exactly what Bitcoin is doing.

Bitcoin quietly building a new base

If the market is still bearish, $3,800 won’t hold as support because market participants would be afraid to catch falling knives. When Bitcoin fell from $6,000 down to $3,200 in a matter of weeks, this is what happened. The fear of the downside potential forced people to stay on the sidelines. With limited buyers, price fell dramatically at breakneck speeds.  

The bleeding was immediately stopped in today’s case for two reasons. The first one was the emergence of buyers. Those who missed out on the move up are scaling in. The lure of the upside potential is attracting those who were previously on the sideline.

The second reason is the limited supply. Volume significantly dropped after the February 24 dump. This is a sign that many participants are holding on to their positions in the hope of selling at a higher price.

The combination of limited supply in the midst of demand has enabled Bitcoin to flip immediate resistance of $3,880 into support.

Bitcoin flipping resistance into support

The price action in the shorter timeframe looks bullish. You will also come up with the same conclusion if you look at the longer timeframe.

Bullish on the Longer Timeframe

When Bitcoin was range trading between $5,800 and $8,000 from June to November 2018, the market printed several higher lows and lower highs. In the end, the selling pressure from the lower highs edged out the demand brought by the higher lows. The pressure was so strong that Bitcoin lost almost half of its value in a month.

Bitcoin breakdown

Today, Bitcoin is still printing higher lows but it is yet to generate a higher high to confirm bullishness. The non-existence of a higher high keeps bears hopeful that Bitcoin will eventually resume its downtrend. To them, BTC is merely repeating its price action when it was range trading between $5,800 and $8,000.

However, bears fail to take into account one important thing; Bitcoin has printed two equal highs in the last two months.

Bitcoin equal highs

The market is determined to go higher because of the combination of equal highs and higher lows. It may be currently struggling to take out a certain level but it is gaining the momentum to do so.

The current market structure is significantly different from Bitcoin’s price action when it was trading around $6,000. This is why we believe that the $4,300 resistance will likely break on the next bullish rally.

Bottom Line

While the February 24 dump may sow seeds of doubt, our reversal roadmap is still intact. Bitcoin is flashing signs of bullishness on both the shorter and the longer timeframes. As long as $3,800 holds, we are fairly confident that Bitcoin will take out resistance of $4,300 on the next rally.

 

Disclaimer: The writer 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.

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.