20.01.202216:03 Forex Analysis & Reviews: COVID pandemic and weak bulls: under what conditions we should expect bitcoin to reverse

The cryptocurrency market continues a slow decline and the total capitalization of assets has broken through $2 trillion in the past 24 hours. The main reason for the fall of cryptocurrency quotations is the instability of bitcoin. The last straw for the market players was the breakout of important support and a decrease to $40,500. Following BTC, the altcoin market also began to drop. As a result, the long-awaited altcoin season is postponed, as seen by the sharp drop of the index to 55 points. In order to understand in which direction the market is likely to move, we need to monitor data related to bitcoin.

Despite the panic occurring in the market, most investors are waiting with for bitcoin to continue growing. However, right now the asset is moving on a razor's edge and can go in any direction. Due to the weak position of buyers, players are more inclined to maintain a downtrend. This is evidenced by the 180% increase in the number of shorts in the incomplete January 2022. But as true bulls we will consider the key factors that may indicate a full-fledged price reversal and a relatively safe entry into the long.

Breakthrough of downtrend line

The first and the main technical signal of the beginning of the price reversal isl a breakout of the downtrend line on November 10. The first and so far the only attempt to break this level took place in the last week of December, but subsequently the breakout turned out to be false and the price went further downward. Over the past three days, bitcoin has closely approached this area, but there is no way to break it. At the same time, the daily chart shows the price compression, and therefore it is worth waiting for the price to reach this level. Technical indicators show a possible bullish breakout of this line by increasing the number of purchases (the RSI) and the beginning of upward momentum on the stochastic oscillator.

Completion of Double Bottom pattern

Many experts assumed that bitcoin may start an uptrend as part of the recovery. However, this did not happen and the price went to retest $40,500. If the price holds above this level, it is possible to form the "W" or "Double Bottom" pattern. If a trend reversal pattern is indeed formed on the charts, a break of the base of this formation near $50,700, where the Fibo level of 0.618 also passes, may become an important signal of a medium-term trend reversal.

Breakout of Fibo 0.768

Bitcoin has been trading within a narrow range of $40,500-$45,700 since January 5, 2022. The first significant sign of the cryptocurrency's recovery is a bullish breakout of the Fibo level of 0.786, which may mark a breathrough of the range. The local target of the current accumulation period is a breakout of this level and entering into the $45,000-$50,000 range, where the following upside targets are located.

Bearish conclusion

Being a bull, I am still inclined to move into the $38,000-$40,500 area, where additional liquidity will be accumulated and short positions closed. Subsequently, we will return to the usual range with a low probability of reaching the 0.7186 Fibo level. Buying activity is still low and institutional investors continue to withdraw money from crypto funds. All of this is supported by the statistics of the omicron spread and the turmoil in the stock market. With that in mind, I assume bitcoin is likely to go lower to gather liquidity and only then may have a chance to recover above $45,000.