In today’s bitcoin news, one analyst explains why there’s a 35% chance of a bitcoin reversal trend forming so let’s find out.
The paused BTC rally increased the chances of a new major pullback according to the analyst Vince Price. He said on Monday that there’s a 35% chance that Bitcoin’s price will fall in the upcoming sessions citing a textbook technical indicator that predicts a bearish reversal pattern forming. The analyst explains why Bitcoin could reverse and mainly it is because of the head and shoulders pattern that appears during the uptrend of the asset. The traders confirm it when they see the formation of three peaks on top of the support-like baseline. The middle peak is usually taller and makes it look like a head handing on top of the two shoulders at each side. This pattern ends up in a breakout below the baseline usually with a downside target by as much as the structure’s maximum height.
Bitcoin is in a weird spot
futures funding rates = very overbought, very overheated
RSI on lower time frames = oversold, esp 4h
Price currently at support, resilient above $18k
— Joseph Young (@iamjosephyoung) November 22, 2020
Prince spotted BTC forming a similar technical setup with the left shoulder and head confirmed fully and the right shoulder partially established. He added:
“Bitcoin is trading already in overbought zones. This does not mean it [cannot] move higher and form new highs. However, the bearish perspective should not be underestimated in any case. Bitcoin is moving into zones where a swift reversal and change in direction can establish more easily.”
If valid, this pattern could risk putting BTC about $1,600 below the baseline but the yellow range in the chart shows the ideal H&S breakout range. Mr. Prince’s bearish outlook on BTC received support from the futures market and according to Glassnode, the average Funding rate reached levels that suggest traders are becoming overleveraged via perpetual contracts. Measured every eight hours, the rate shows the costs of holding a bullish contract like a long position. The positive reading indicates that the bulls are paying the bears which also raises the value of the perpetual contract above Bitcoin’s spot rate. A high funding rate signals leverage that is biased in favor of the bulls which usually means it is in an overbought condition.
An event of a pullback in the spot market will lead to a long liquidation that could lead to more price drops and high volatility. Prince also believes that there will be a corrective downtrend and noted that BTC will find support at the H&S neckline to shoot higher and to invalidate the entire trend reversal:
“As Bitcoin has still solid supports [near] the 65-EMA and the blue horizontal support, the bullish breakout has a greater possibility of 65%.”
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