After reaching a fresh high for the year earlier this month, Bitcoin has market observers questioning whether the momentum is sustainable with prices again trading in a very narrow range.
(Bloomberg) — After reaching a fresh high for the year earlier this month, Bitcoin has market observers questioning whether the momentum is sustainable with prices again trading in a very narrow range.
The largest cryptocurrency has been stuck between $29,500 and $31,500 after a nine-day, 27% surge in June. The back-and-forth filling that followed saw Bitcoin make a failed attempt to break higher, with the token now finding itself at the low-end of the sideways congestion around the $30,000 price level.
“Stalling at about $30,000 amid hype about potential for an exchange-traded fund launch and the seemingly unstoppable stock market, a Bitcoin pause may signal bigger economic issues,” Mike McGlone, a senior market strategist at Bloomberg Intelligence, wrote this week.
Here are some charts that can be used to assess the direction for Bitcoin:
Volatility Squeeze
Bitcoin’s low in the middle of June kick-started a rally supported by cryptocurrency initiatives involving established firms from the traditional financial sector such as Citadel Securities and BlackRock. The token’s rally saw volatility ratchet higher, leading to an expansion in the Bollinger Bands. The recent sideways churn has seen a so-called “volatility squeeze”, with the bandwidth dropping to six-month lows. Such situations often become a precursor to a breakout move given the cyclical nature of volatility.
Above Support
Bitcoin believers will take comfort in the fact that the sideways correction is taking place above a critical area of support. This is where two Fibonacci relationships stacking on top of each other are meeting a time-at-price cluster zone around $27,000 to $27,500, whose density is defined by the number of closing prices that were recorded in this area during the rally that began in November.
Significant Barrier
A break above the current horizontal regime – if it comes – will still have plenty of work to do based on an analysis of a Point-and-Figure chart, which is a method of plotting prices without a time dimension. As per the analysis, a daily close of $32,836 will be needed to clear a very significant barrier formed by the coming together of a 45-degree down-trending line (red dashed) and a prior support area (blue horizontal lines), now offering resistance. Clearing this will be a further shot-in-the-arm for Bitcoin bulls.
Maximum Pain
The options chain for August-end expiration further reinforces the importance of the technically significant levels mentioned above. Notice that the highest put (blue bars) open interest under $30,000 lies at $27,000. On the upside, the concentration of outstanding calls spikes to nearly 3,200 tokens at a strike price of $32,000, not too far away from the Point-and-Figure hurdle of $32,836. The point of “maximum pain,” which represents the price at which most outstanding options will expire worthless remains at $30,000.
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