Bitcoin Breakout or Collapse? Here’s the deal.
Bitcoin prices were hammered and cryptocurrencies have mostly taken a massive dive this year.
Specifically, Bitcoin saw a top-to-bottom decline of nearly 75% and is down 47% so far in 2022.
The moves clearly answered the question of whether bitcoin, ethereum and others would act as a hedge against inflation.
While they initially jumped and rose in 2020 and 2021, investors have to question whether this was due to the rise in risk assets (such as high-growth stocks) or due to inflation.
Given the way bitcoin and other cryptocurrencies have traded lower so far this year, they appear to have a much stronger correlation with growth stocks than they do with inflation, which has been rocketing higher.
Now, however, bitcoin prices have been recovering since bottoming out in June. It’s even like Tesla (TSLA) – Get Tesla Inc. Report and others have sold.
Specifically, bitcoin has risen in four of the past six weeks, while the two declines were losses of 0.26% and 0.58% respectively.
Can the bulls continue to drive bitcoin higher?
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Daily chart of Bitcoin.
Chart courtesy of TrendSpider.com
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Bitcoin hit its lows in mid-June on high volume and has been trading constructively ever since. Specifically, it is set in a series of higher lows, as mentioned in the chart above.
It is also back above its moving averages in the short and medium term, while holding its daily VWAP as support.
However, it is struggling with the $24,250 to $24,500 zone as well as the 10-week moving average. If the bulls want the show to continue, the ideal development would be a breakout above this level.
At the end of the day, investors are looking for bitcoin to return to their bullish ways.
It is trying, but the rally has been slow. If it can break out above the $24,500 level, however, the bulls could be on to something – especially if it happens alongside a further rally in risk assets.
In particular, a major breakout could put $29,000 in play, where it enters the 38.2% retracement of the 2022 series, a huge previous support level at $29,800 and the monthly VWAP target.
On the downside, keep an eye on the 10-day and 21-day moving averages and the daily VWAP target. If it were to lose all three goals, the 50-day would come back into play.
An increase in risk occurs if the 50-day fails as support, as it puts the July low at $20,696 into play and could accelerate the decline if bitcoin rotates below this low. That could put the mid- and high-$18,000s in play.
So what’s the bottom line? So far, the bulls are in short-term control in bitcoin, but that momentum risks waning as the cryptocurrency fails to push through resistance. Above $24,500 is bullish and below is more cautious.
