Bitcoin (BTC) experienced a significant price drop, falling back to the $84,000 level on Monday. This decline reignited concerns about a potential continuation of a bear market. However, the horizontal support at $84,000, coupled with a major ascending trendline, has so far prevented further significant price erosion. The question remains whether a bottom is currently forming for the cryptocurrency.
Market Sentiment and Technical Indicators
Mainstream media and social media narratives suggested that the Bitcoin dip experienced from Sunday into Monday was driven by factors such as the unwinding of the yen carry trade, weakening economic data from China, and an intensified crackdown on cryptocurrency by Chinese authorities. However, from a technical analysis standpoint, the BTC price had reached a significantly overbought state in the short term, indicating that a reversal impulse was likely. It is also plausible that market makers exploited these macroeconomic concerns to drive the price down sharply, liquidating leveraged long positions totaling $833 million.
Double Bottom Pattern Potential
Looking at the short-term Bitcoin chart on Tuesday, it appears that the immediate panic may have been averted. The price experienced a decline of approximately $7,500 following rejection from a confluence of two descending trendlines and a horizontal resistance level. This rejection is more likely attributable to these price barriers rather than any specific events related to Japan or China.
Currently, the BTC price is trading just above the $86,800 support level. There remains a possibility that the price could retrace a small distance to retest the major ascending trendline before initiating an upward movement, potentially with more conviction.
In addition to resetting most of the shorter-term momentum indicators, the price action suggests the formation of a double bottom pattern. These are considered bullish signals, and the next crucial step for the price will be to break through the faint downward trendline and establish a higher high above the $93,000 mark. Such a move could signal a shift in the prevailing trend.
W Bottoming Pattern Formation
While still speculative, observations on the daily timeframe suggest the potential formation of the first part of a W pattern. This particular W pattern appears quite tilted. If the price successfully breaks through the fainter downward trendline, this could be considered the neckline. Alternatively, the longer descending trendline could also serve as the neckline for this W pattern.
Regardless of the specific interpretation of the neckline, this pattern is frequently associated with a double bottom and could serve as an indicator that a rally to the upside is imminent.
Historical Data Suggests Impending Rally
Analysis of the 2-week chart, which measures Stochastic RSI cross-ups from bottoms to tops over the past seven years, reveals a consistent pattern. There have been seven such occurrences in seven years, averaging approximately one per year. This data highlights the rarity of these events and the significant momentum they tend to signal.
Historically, most of these Stochastic RSI cross-ups have resulted in price increases exceeding 100%. If a 100% rise is considered a potential target for the upcoming cross-up, this would place the Bitcoin price around $170,000, suggesting that holding Bitcoin could be a worthwhile strategy.