Bitcoin (BTC) has projected some strength recently which is being touted as the beginning of a new bullish cycle by most retail bulls. More traders and analysts are beginning to think that considering the recent move scared off many of the retail bears who are very quiet all of a sudden. However, in this market the majority of traders tend to forget how certain things happen over and over again. If we look at the daily chart for BTC/USD, we can see that it has faced a clear rejection at the 50-day moving average. However, most retail bulls seem unconcerned by this as they still eye further upside. If the price makes a fake move past the 50 Day EMA, many more will buy into the hype and FOMO into the market.
The point is, very few will realize that such patterns have been seen before in the past just before a crippling crash. It was in the last few months of 2018 that we saw the price trade for a while below the 50-day moving average. While it did that, we saw a weakening of the bullish resolve. This was a point where the price traded within a tight range for a long time before a devastating decline. The reason the next downtrend is likely to be similar is because if the price declines below $7k it will be expected to find support around $6k. However, that is also a point where most traders have their stops. We are likely to see a sharp decline that would run some of those stops just below $6k and then the price would bounce back up.
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However, the market makers and the whales realize that there are way more stops below $6k and they are not going to give them an opportunity to cover their positions or manually close them. Instead, they would want to shake them out aggressively to get them all which would lead to a chain reaction of stop hunts that could easily pull the price down to $3k and potentially much lower. It is very important realize that the price of Bitcoin (BTC) could trade sideways for weeks if not months before the next crippling crash. The daily chart for BTCUSDLongs/BTCUSDShorts shows that the ratio is expected to decline long term but short term it could keep bouncing up and down in a tight range. In fact, it would not be surprising to see it rise above the 161.8% fib retracement level while Bitcoin (BTC) remains range bound.
Political turmoil seems just around the corner after the recent US-Iran fiasco which has the potential to escalate into a full-scale war. That is not a time where big investors would want to toy around with Bitcoin (BTC) or cryptocurrencies. We have seen even gold prices fall initially during times of a financial crisis because people need to sell what they have to get cash to pay for expenses or to buy assets at lower prices. Regardless of what happens to Bitcoin (BTC), the blockchain technology is here to stay and would likely be used by central banks around the world to print their own digital currencies. That being said, there might come a time where people might not want to use government backed currencies and something like Bitcoin (BTC) would become the go to currency but this is not a time to be betting on that outcome because the risks far outweigh the rewards of buying or holding Bitcoin (BTC) at this point.
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