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The recent surge in Bitcoin markets has pushed its spot prices from the bottom $29,000 to $46,781 on the Coinbase platform.
The upward movement of 59.65% encouraged bulls across the crypto space, with some predicting that the price of Bitcoin could easily cross $100,000 by the end of 2021. But despite all the bullish predictions, the major cryptocurrency still faces downside risks, due to This is mainly because the current uptrend appeared during a bearish correction.
the background
In detail, Bitcoin has reached an all-time high Near $65,000 In mid-April 2021. The cryptocurrency gained strength after posting a bullish rally of 1,582% that started in March 2020. Excessive USD liquidity coupled with significantly lower interest rates have contributed to pushing the Bitcoin price higher.
This was primarily due to the cryptocurrency’s safe haven story that led investors to treat it as a hedge against traditional insurance assets, which included US government bonds and the dollar itself.
The factor that attracted investors to Bitcoin was its scarcity. Due to a pre-programmed algorithm written in the Bitcoin source code, there can be no more than 21 million tokens in life. Moreover, the active supply rate is halved every four years.
As a result, Bitcoin tends to act like a digital copy of gold, a traditional hedge asset. Since it is a faster and more compact alternative to the precious metal, analysts including PlanB, Paul Tudor Jones and others believe it will eliminate a large part of the gold market in the future.
It explains why institutional and individual investors flock to the bitcoin market in 2020 and even now in 2021. While on the one hand, the US Federal Reserve has continued to pump trillions of dollars of liquidity into the economy by buying $120 billion in bonds per month and lowering prices. Standard lending has been reduced to zero, resulting in excess dollar liquidity, and bitcoin has served as a rare alternative to the dollar.
Bitcoin Correction
But the supersonic rise in bitcoin prices between March 2020 and April 2021 also created avenues for traders to lock in very higher profits. This caused a wave of minor corrections during its uptrend. However, in May 2021, one big sell-off threatened to end the bullish cycle.
A series of negative developments led by Tesla CEO Elon Musk led to criticism of Bitcoin’s growing carbon footprint and the ban of all kinds of crypto activities in China, which led to a massive sell-off in the market. As a result, the bitcoin price fell to $30 thousand on May 19, 2021.
Many analysts expected an extended decline, with targets between $13,000 and $25,000. However, Bitcoin bulls held a strong support level of $30K for weeks, despite losing briefly several times, thus pushing the cryptocurrency price towards $29K.
But on July 19, there was a huge rally, as Elon Musk took to his social media to undo Bitcoin FUD. The billionaire businessman, who is still exposed to $1.3 billion worth of bitcoin via his company Tesla, has acknowledged recent efforts to reduce the cryptocurrency’s carbon footprint.
Meanwhile, Twitter CEO Jack Dorsey has also committed to developing and launching a Bitcoin-based platform. A similar decision was made across Wall Street banking giants – Morgan Stanley, Goldman Sachs and JPMorgan & Chase – that decided to offer Bitcoin investments to their wealthy clients.
Bitcoin bounced strongly in the news, ignoring equivalent news like increased regulatory action against companies operating in the crypto space globally (read Binance, Ripple). On-chain data shared by Willy Woo also showed that all groups of investors were buying up the rally.
“It turns out that shrimp (with less than 1 bitcoin) dominate the middle and late stages of bull markets,” Wu said.
“In the chart above, we can clearly see the shrimp buying of the COVID drop and this current low being very aggressive. Their buying volume continues to rise as this bull market matures, with no bear market on the horizon using this lens.”
But is it sustainable?
Historically, no.
Bitcoin underwent a similar supersonic bullish bounce during the 2018 and 2019 corrections. For example, the cryptocurrency rebounded up to 100% while heading lower in 2018 but later resumed its downtrend. The same thing happened in 2019-2020.
Each time, the Bitcoin bear market exhausted itself near the technical support level: the 200-week exponential moving average (the 200-week exponential moving average; the orange wave). A rebound ensued, and the cryptocurrency surged to another all-time high.
Each drop down also consists of horizontal levels and potential resistance that came as part of the Fibonacci retracement charts. In detail, we plotted these charts from the local bullish top to the 200-week swing low of the exponential moving average.
As one can see, in 2018, the BTC/USD exchange rate briefly dropped below the 0.236-line at $7,038 and retested the same level over and over after encountering resistance in the 0.382-0.5 Fibonacci range (9,457-11,142). dollars). Then the price drops to the 200-week moving average.
2018 price action looks similar. Bitcoin is finding temporary support at the 23.6 line at $7,357, but it also failed to extend its bounce beyond the 0.382-0.618 Fibonacci range. In the end, the price broke below the 0.236 line to reach the 200-week moving average.
Cut for display.
Bitcoin rebounded from the $29,000-$30,000 support area that coincides with the 0.236 Fibonacci line. The cryptocurrency has now approached the 0.618 line near $46,900, with an extended bullish target near $54,858.
But if the price fails to break above the 0.618 line, it will retest the $29,000-30,000 range again, which also raises concerns that it may be the 2018-2019 fractal.
However, there are ready-made meals that are much brighter. In 2018, prices collapsed due to the collapse of the initial coin offering. In 2019, it was plunged by uncertainty around the Facebook Libra project and the civil war between two Bitcoin Cash camps, which eventually led to the creation of a rival Bitcoin SV.
2021 is different. Bitcoin’s current rally has solid fundamentals (read inflation). If it fits the conscience of investors, the cryptocurrency could break the 200-week EMA retest period during bear markets.
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