“Bitcoin is a bubble.”
“Governments will ban Bitcoin.”
“Bitcoin’s price is going to zero.”
“Bitcoin’s environmental problem is too big that will be useless in our society.”
If you have been paying attention, most headlines sound a little like this. On social media, investors are speculating why the price of Bitcoin is dropping, and the media only talks about Bitcoin's last retracement from its all-time high on April 14th, when it was trading at $64,800, to its current price of $37,000.
In the previous technical analysis that I made for Bitcoin on April 30th, I talked about how leverage played a significant role in selling pressure. In a video that you can watch here, I warned investors to take this retracement calmly. I drew two levels of support (demand) that needed to be test at that time. Let’s take a look at the figure below:
Figure 1. Tradingview. Daily TF (Log. Scale)
The vertical yellow line marks the day I posted my technical analysis on YouTube. My first support level was between $40,000 and $43,000. As you can see, the price broke that level on May 19th, and it found support at my second support level. My second support level was between $28,700 and $31,700. Evidently, this support level was more robust because as soon as the price touch that level, there was a bounce.
The million-dollar question is: What is next for Bitcoin? I would love to respond to this question and be like many crypto gurus on the internet who love to tell you what the price of Bitcoin will be next week, but I decide to be cautious here. Let's zoom in on our chart and analyze the price action:
Figure 2. Tradingview. Daily TF (Log. Scale)
When the price touched my second support level, the price bounced, and it found rapid resistance in our previous support level 1. How does this make sense?
Let me explain: There is a concept in technical analysis called the Polarity Effect. That is, a previous support level becomes a resistance level, and vice versa. The psychology of the players changes when circumstances change.
Figure 3. Tradingview. Daily TF (Log. Scale)
In figure 3, when the price of Bitcoin broke the $41,500 - 42,300 resistance level on February 15th, traders who bought Bitcoin here were scared when they saw the price retrace to that same level again a couple of months later. Even worse, the price went all the way down to $30K. Because most traders are reluctant to lose on a trade, they likely waited until the price reached the entry-level at $41,500 - $42,300 again and sold their Bitcoin so that they could at least be at break even. As a result, selling pressure at that the $41,500 and $42,300 level was even more significant. It's all about psychology.
I study two possible scenarios for Bitcoin.
Figure 4. Tradingview. Daily TF (On Balance Volume – Line Chart)
Due to this event, Bitcoin’s price will likely the blue uptrend line, or worst case, touch my 3rd support level between $19,000 and $20,500. I think that level is solid and is likely to hold, as shown in figure 5:
Figure 5. Tradingview. Daily TF (Log. Scale)
As Warren Buffett says, "Be fearful when others are greedy, and greedy when others are fearful." Bitcoin's fundamental has not changed, and technically speaking, Bitcoin remains in an uptrend with a third support level that has yet to be tested. We’ll be keeping an eye on it.