At the time of writing Bitcoin is currently trying to break out of ranging price action after a strong correction at the start of the week. While cautious, we believe there are reasons to be optimistic about Bitcoin in the medium term.
Let’s take a look…
In our previous Market Updates, we shared a take profit target of $54,000 based on this fib extension on the chart below. That target was hit on Friday before the correction a couple of days later.
Fig 1: First Take Profit target was reached on Friday.
Price then came back to bounce hard right off the 0.618 fib. Due in part to a strong bid stepping in across exchanges as can be seen here on the order book heatmap of Bitfinex:
Fig 2: A wall of bids (yellow lines) appeared on Tuesday at Bitfinex and other exchanges to shore up the price.
The main reason for the strong correction at the start of the week was due to traders being overleveraged. After the correction and pullback to $45,000, it is very encouraging to see that funding rates across exchanges have now largely reset:
Before the pullback at the start of the week, funding rates across exchanges were as high as 0.3! Meaning that traders betting on more upside for $BTC were paying a very high premium. Often in such cases, the market needs to reset, which is what we have seen over the past few days.
Technically there are a few levels that $BTC needs to get through before being able to reclaim the all-time high:
Fig 4: 1hr chart, $BTC.
- $BTC is currently breaking above the $51130 level that acted as resistance as Coinbase announces details of its IPO listing. The market appears to be reacting bullishly to this news.
- The next trouble area will be the 200ma which acted as support for the entire up move during February.
- A fib level of the fib extension at $54,600 may be tough to close above.
So there is quite a lot of resistance up ahead but if a strong bid continues to come in on spot exchanges we believe a move up is possible in the near term, thanks to overleveraged traders having been flushed out and funding levels reset.
The risk to the downside is the 0.5 fib level on the fib extension. That is around $41-42k. If we were to lose that and start closing below it things could get ugly very fast – as that would suggest a fundamental change in the market structure.
To further support the bull case it also appears that large players are continuing to accumulate at Coinbase and then take those bitcoins into cold storage:
~13.3k #BTC has left Coinbase 20 min ago.
That’s a pretty large withdrawal.
Last spikes of such magnitude were on Feb, 5 and Jan, 31. pic.twitter.com/EFAs6vsRuR
— Lex Moskovski (@mskvsk) February 24, 2021
This is an extremely bullish signal as we already know that there is a supply shortage of bitcoin, which is going to continue as long as these sorts of activities are going on.
There are two key participants in the market right now: derivative traders and spot buyers of bitcoin. Traders exuberance has been washed out on the recent pullback which we believe reduces a lot of potential further downside risk in the near term. Meanwhile, we continue to see strong buying from spot buyers, which is bullish.
So while the market is still uncertain, we are favoring further upside for now.
Happy trading and speak soon,
The Decentrader Team.
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Disclaimer: Nothing within this article should be misconstrued as financial advice. The financial techniques described herein are for educational purposes only. Any financial positions you take on the market are at your own risk and own reward. If you need financial advice or further advice in general, it is recommended that you identify a relevantly qualified individual in your Jurisdiction who can advise you accordingly.