Analyst warns bitcoin could still crash below $20,000
Bitcoin has entered uncharted territory after its dramatic breakout above $22,000 on Thursday. And now the flagship cryptocurrency is aimless about the next trend.
Traders have no historical reference to guess short-term support and resistance levels. Nonetheless, many of them have Crowd Millionaire predicted an extended bitcoin rally in the wake of supportive fundamental indicators.
These factors include ever-increasing institutional capital inflows into the cryptocurrency market and euphoria among retail investors led by a bearish outlook for the US dollar in 2021.
Amid the bullish rush, however, there are also some warnings of possible bearish corrections.
The RSI factor
Bitcoin’s price rally above $20,000 had made it an overbought asset, according to some technical indicators (the Relative Strength Indicator). This requires some degree of sentiment neutralisation, which could only come if traders with short-term risk appetite start to take their profits.
A pseudonymous analyst writes something similar in a recent note. According to him, BTC/USD could extend its uptrend to $23,000-24,000. But then the pair could correct by about 20 percent – a move that could send BTC crashing to as low as $19,000. The analyst:
„BTCUSD is at its highest with a weekly RSI reading of 87-90. The price corresponding to the weekly RSI of 88.5 is $23k. An RSI of 53 provides significant support. The price equivalent is $13.6k and rising $500 per week.“
Calls for a downward move are also coming from elsewhere. Independent market analyst Jonny Moe is currently warning in a tweet of a potential bearish reversal pattern forming on Bitcoin’s short-term charts.
The Rising Wedge typically causes an asset to break lower after a prolonged rise.
„Last stand for the bears,“ commented Mr Moe as he tweeted the bearish chart.
Bitcoin’s growth potential
On long-term charts, as well as the daily chart above, Bitcoin is showing signs of reversal after testing the upper trendline of the Ascending Channel area. Traders could look to sell the upside with a short-term target towards the previous support at $19,000, followed by an extended sentiment towards the lower trendline, which is in the $18,700-18,800 area.
But given the macroeconomic setup, led by the US Federal Reserve’s recent pledge to buy Treasuries at the same pace and keep interest rates near zero, it could mean traders are buying the next bitcoin dip for its long-term bullish outlook.
That would mean the cryptocurrency bouncing back towards the channel’s upper trendline. The resistance line would then be somewhere in the $24,500-25,000 range.