Price of bitcoin could retrace, but how far?
The #1 digital currency has staged a strong recovery over the last two months, but after any surge there is always a chance the price of bitcoin will fall, but where to?
Bitcoin has made an impressive start to Q2 2019, with multiple days of triple-digita and even quadruple-digit growth. After breaking resistance at $4,200, bitcoin pushed $1,500 dollars higher in April and – to date – over $2,000 higher in May.
Disclaimer: This article is not intended to provide financial advice. Bitcoin Bulletin will never tell you what to do with your money.
While this shows welcome confidence in bitcoin after a long and painful bear market, such parabolic increases are rarely sustainable, and are almost always followed by heavy falls. At the time of writing, bitcoin appears to be consolidating above $8,000. But what do the next few days and weeks hold?
The bull case
It’s possible that this run has further to go to the upside. A period of consolidation might be enough to satisfy traders and allow indicators like RSI to come down from their overbought zones. If that happens, we could see another move to the upside, with a target in the $9,000–$10,000 zone.
The short-term bear case
Whether or not this happens, a retracement must be considered – markets rarely move so far and so fast without at least a dip. We have seen a pullback to $7,619 (Bitstamp) from the year-to-date high of $8,335, or 8.6%. The 38% fibonacci line held, and maybe this is enough.
If not, support lies in the $6,800 region, which is the top of the consolidation band from the 2018 bubble crash, and a likely target for bears. $6,000 is another, as the lower end of this band and a major psychological level – bitcoin took many, many months to break this decisively on the way down in 2018. (For what it’s worth, $6,800 or $6,000 feels like the most likely scenario at this point.)
After that, we are probably looking at $5,600 as an area of confluence – bitcoin paused here on the way down in 2018, and again on the way up earlier this month – and then nearer $5,000-5,200. Falling that far would erase all of bitcoin’s gains since the start of April, after it broke resistance. Even if this occurred, there is a good case for saying the uptrend is still intact.
The longer-term bear case
At this point, the following scenario seems extremely unlikely, but it’s worth mentioning. Should $5,000 not hold, then there is a good chance of revisiting that $4,200 resistance level, retesting it as support. Holding there and recovering would again show that the bear trend was over. Despite painful falls of effectively 50%, the structure of the bear market would still be broken and the new bull market – though subdued – still just about valid.
The problem would come if the price of bitcoin crashed through $4,200, at which point it is highly likely it would drop significantly further. The 200-week moving average currently sits around $3,600; price retested the 200 WMA in the aftermath of 2014-2015’s bear market, before finally taking off. However, there would be the possibility of testing as low as $3,000 once again, the market making sure once and for all that this support was in place.