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- Bitcoin pumped $1,00 overnight in a probable short squeeze
- The move took Bitcoin back to a crucial level of resistance
- The move increased talk that the bottom is in
Bitcoin enjoyed a $1,000 pump overnight as talk of a market bottom gathered pace. The price went as high as $18,400 before slipping down a little, almost exactly a month after it hit the same high, a move which led to a drop back to $16,300 within a week. So what does last night’s move mean for its overall strength? Let’s have a look.
Steady Grind Leads to Blowout
Bitcoin has been grinding its way steadily up from a year-ending drop to $16,340, taking out resistance levels in the process. Last night’s jump to $18,400 echoed a move it pulled almost exactly a month ago:
In isolation this looks like a simple short squeeze, which is why we must view it in a wider context. For example, when viewed in the context of the November drop triggered by the collapse of FTX, we can see that, generally speaking, there seems to be a desire to leave the range:
However, when viewed as a weekly chart, we can see that Bitcoin is at a critical level:
This chart shows very clearly the importance of the current area of resistance Bitcoin is facing. In late 2020, this line acted as crucial support before the start of a huge rally to $42,000, and remained support throughout late 2022 when the market was in reverse. However, the collapse of FTX took it right through in one fell swoop, and the current rejection is the second such in quick succession.
Put simply, Bitcoin can’t hope to make further progress until this resistance is flipped and turned into support again. If it does that then we could be looking at a bear market rally all the way up to $24,000, the level at which we can become bullish if it crosses and holds.
Is The Bottom In?
Last night’s move has led to more calls that the bottom is in, and indeed a couple of months ago we made the case that the worst might be over for the bear market. This thesis is supported by a number of metrics, all of which suggest that the selling is all done and accumulation is starting again at these prices.
However, history also tells us that bear market rallies can end up right where they started, so even if Bitcoin does get to $24,000 or even higher, it can come right back down again. Don’t forget that Bitcoin was stuck around $6,000 for months in 2018, before tanking 50% in a final flush.
The only thing that could push Bitcoin further now is another FTX-style collapse (Digital Currency Group, anyone?) or further action from the Federal Reserve to curb inflation. Only once those twin concerns are off the radar will Bitcoin be good for lift off.