According to study of charts, there is a growing likelihood that there will be a decline in the price of bitcoin (BTC) in the near future.
The most recent price at which Bitcoin was traded was close to $27,500, which is approximately 6% lower from the nine-month highs it reached on Friday in the $29,300s.
The failure of the cryptocurrency to repeatedly hold above resistance in the form of the late-May 2022 lows in the low-$28,000s this week has caused some traders to be concerned that a short-term pullback to key support in the mid-$25,000s might be on the horizon. This resistance was established in the form of the late-May 2022 lows.
And the fact that Bitcoin couldn’t maintain its price above $28,000 isn’t the aspect that points to an increased danger of a decline in the immediate term.
The relative strength index (RSI) for Bitcoin over the past 14 days has shown signs of bearish divergence in recent days.
In this area, the RSI has been going down despite the fact that the price of bitcoin has been steadily going up. According to the opinions of a few technicians, this is a sign of an impending adjustment.
In addition, Bitcoin’s most recent surge into the upper $20,000 range drove an indication of price momentum to levels that have never been seen before, indicating that the market may be approaching an overheated state.
At the beginning of this week, Bitcoin’s Z-score relative to its 200-day moving average (DMA) increased to a value greater than 3.0.
This indicates that the price was more than three standard deviations above its average over the previous 200 days. This is an extremely rare occurrence that may indicate that the upward momentum is becoming overstretched.
The Z-score of Bitcoin in relation to its 200-day moving average was recently around 2.5, which is still very high when compared to historical standards and is at its highest level since early 2020.
Dip-buying Demand to Remain Elevated
It would suggest that there is now a greater potential for a decline in the short term. Bitcoin optimists, on the other hand, shouldn’t worry themselves too much.
Because of this, the underlying storylines that powered the stunning recovery from mid-March lows below $20,000 are likely to remain tailwinds for the foreseeable future. These lows occurred in March, and they were below $20,000.
Readers will recall that earlier this month, three American banks filed for bankruptcy, which sparked fears of a more widespread global banking crisis and prompted traders to aggressively cut back on bets on more tightening from the US Federal Reserve.
The Federal Reserve delivered a dovish pivot in its rate guidance at its meeting this week (despite still lifting interest rates by another 25 basis points), and investors are now betting that a cutting cycle will begin in the second half of the year as a result. This was the expected outcome of the meeting.
Bitcoin has been given a dual tailwind in the form of safe-haven demand (as an alternative to fiat currency) and demand for assets that perform well in an environment with lower interest rates as a result of the combination of concerns regarding the state of the financial system and bets on easier monetary policy (which Bitcoin typically has).
The likelihood of a bank contagion spreading remains high, and the prognosis for the US economy has become noticeably more pessimistic; hence, these tailwinds should continue to be effective.
Bitcoin is also likely to continue benefiting in the longer term from the positive on-chain trends that have been observed.
They include an increase in the number of daily transactions, the number of wallet addresses with a balance greater than zero, the rate at which new addresses are created, and the number of daily active wallets that interact with the blockchain.
Any retracement in the price of bitcoin to the region around $25,000 would likely be met with strong demand from investors looking to buy on the dip.
In the coming weeks and months, longer-term risks continue to favor a push into the $30,000 range.
At the very least, that appears to be the message being sent out by Bitcoin options markets-Since late 2021, when Bitcoin reached all-time highs around $69,000, the 25% delta skew of Bitcoin options with expiration dates of 90 and 180 days stay quite close to their greatest levels.
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