Bitcoin Could Be Poised for a Rebound
Bitcoin’s declining momentum has historically preceded a mild increase in price.
Apr 25, 2023 at 7:43 p.m. UTC
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Bitcoin’s third consecutive day of negative trading has aligned with technical indicators that suggest bitcoin’s price could rise again, at least in the short term.
Bitcoin's (BTC) price has retraced 9% since breaching the psychologically important $30,000 mark on April 14. Ether (ETH) has declined 14% over the same timeframe after peaking above $2,100.
A few things stand out, technically:
- The $30,000 price clearly indicates resistance. Support or resistance for bitcoin and ether tends to concentrate around large whole numbers because traders usually place buy and sell orders at points that end in 0 or 5.
- Bitcoin reaching $30,000 aligned with what at the time was the upper range of its Bollinger Bands.
- Bitcoin’s trading range contracted to .0005% between open and close as it reached the upper range, implying that buyers and sellers were content with its price.
Bollinger Bands plot an asset’s 20-day moving average, and calculate two standard deviations above and below the average. As an asset’s price is expected to stay within two standard deviations of the average 98% of the time, a breach of either level is considered an event worth watching.
In this most recent case, the breach occurred in conjunction with what is likely a psychological resistance point. Investors are generally most concerned with what happens next.
The recent decline accompanied an expected drop in momentum, but it also occurred in conjunction with a move towards the lower end of the Bollinger Band. The momentum drop shows in the decline in BTC’s Relative Strength Index (RSI) from 71.54 to the current 42.53.
Between January 2015 and today, bitcoin’s RSI sat between 42 and 45, 163 times, with an average 30-day performance of 6% following the occurrences.
The future seven-day performance has historically been flat, with a mere 0.63% gain.
Meanwhile, bitcoin approaching the lower range of its Bollinger Bands raises the question of whether prices will decline below the mark or stay within the confidence interval and move higher.
Given recent history, technical analysts could expect BTC prices to advance, albeit methodically, back to their 20-day average. In a moment of technical alignment, bitcoin’s 20- day moving average is approximately 6% above its current price.
Meanwhile, the CoinDesk Bitcoin Trend Indicator has declined from 0.5 (Uptrend) to 0 (Neutral), further highlighting the recent pause in price movement.
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Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX