The sell-off in the cryptocurrency market since November last year has not just jittered retail investors’ confidence but the confidence of many astute investors. The recent WazirX-Binance rift has also raised concerns regarding how these exchanges work. Nonetheless, the worsening sentiments in the entire industry are clearly reflecting a crypto winter. Crypto winter is another term for a bear market of cryptocurrencies.
After fell to a 52-week low of ~US$17,630 on 18 June 2022 on account of heavy selling pressure, it hasn’t been able to deliver a meaningful recovery as investors’ demand is still suppressed. However, there was a gradual bounce back from the bottom in the next 2-3 sessions which marked that low an intermediate bottom.
Image Description: Daily chart of Bitcoin
Image Source: Investing.com
After the recovery, bitcoin had slowly been moving sideways for many weeks with a slight bullish tilt. As supply gradually abated, bitcoin holders started to see a ray of hope as it kept on making higher lows. This price action ultimately led to the formation of a rising channel pattern which depicts an uptrend. It is denoted by two rising trendlines (one below and one above the security) and both being parallel to each other. As long as the stock stays within this channel, it is considered to be trending up.
However, once a breakout from these rising trendlines occurs, a significant move in the respective direction is expected. As it was a rising channel, a break above the upper trendline might have accelerated the uptrend. However, bitcoin actually broke the lower rising trendline with full force, which is a sign of a trend reversal.
Now, as bitcoin has breached on the downside, the prior mild uptrend could be deemed to have ended and a further move on the downside is expected. How far bitcoin would fall is difficult to estimate as there is no target mechanism to determine a potential move after a channel breakout, as it is with other chart patterns. As bitcoin is an epitome of volatility, a retest of the prior low might be on the cards.
More interestingly, after the breakout, bitcoin had been trying to rally back into the rising trend channel but has failed to do so for the last couple of days, facing stiff resistance from the trendline (Blue arrow on the chart). This is another sign of the strength of bears and further conforms to a downtrend.