Which Bitcoin correction? BTC price holds at $ 55,000 despite several bearish indicators
Senior analysts and the media, including Cointelegraph, have recently highlighted some indicators suggesting that the Bitcoin (BTC) price rise may be too prolonged.
These bearish views include that of Bollinger Bands creator John Bollinger suggesting traders use a trailing stop as signs of a “top” accumulate.
However, it should be noted that the Bollinger Bands and the Fear and Greed Indicator are retrospective measures. Therefore, these will typically show overbought levels whenever there is a 30% weekly rally, like the most recent.
As crypto analyst TechDev_52 correctly questioned, there is no way of knowing if we are entering a large potential correction or a continuation of the rally.
Now you know why they call it a “bear trap”. It’s damn convincing.
How do you know the “peak” “trap”? One is around the other pointed.
– TechDev (@ TechDev_52) May 16, 2021
For example, popular YouTuber and trader Nebraskangooner, shows that the recent high of $ 56,000 could have been the upper range of a bullish chain that has guided Bitcoin since late July.
OBV is recovering but has not quite erupted yet.
Reach the top of the canal.
Would love to see a bullish consolidation at the upper end of the range leading to an OBV breakout with price breakout for a bullish mega continuation. https://t.co/btm5aW7WTW pic.twitter.com/kPqwOSMgE1
– Nebraskangooner (@nebraskangooner) October 6, 2021
“Greed” mode can last for weeks or months
Getting back to the fear and greed indicator, below are some examples showing that such a measure can maintain overbought levels for more than three or four weeks.
Notice how between January 29 and February 26, the Bitcoin Fear and Greed indicator remained above 65, indicating that traders were overconfident.
The metric uses transaction volume, open term interest, social metrics, and research data to calculate market craze.
Thus, it took four weeks before a significant correction in the price of Bitcoin took place after the warning sign appeared. Whoever sold in the first few days after the indicator flashed missed the ensuing 70% rally.
A similar trend occurred between July 23 and August 25, as the price of Bitcoin continued to recover. Yes, a correction will always come at some point, but how many weeks or months later?
Bollinger bands, a good short-term indicator
John Bollinger is an experienced and respected trader, but his indicator is the moving average plus a spread based on current volatility. In short, a weekly movement of 30% will be outside of this range most of the time, given Bitcoin’s usual daily volatility of 4.5%.
Granted, a minor correction tends to occur when Bitcoin breaks the upper Bollinger Band, but this has absolutely no correlation with the price about two to four weeks ahead.
The financing rate was neutral
Finally, it is necessary to analyze the funding rate, a commission charged by derivatives exchanges to balance the risk between long (buyers) and short (sellers) positions because their leverage varies. Indeed, when a buying frenzy takes place, the indicator goes up.
The current average rate of 0.04% per 8 hours, or 0.8% per week, is nothing out of the ordinary. In December 2020, for example, it stayed above 1.5% per week for an entire month, and then again in February 2021.
Similar to the Fear and Greed indicator, this metric shows that buyers are becoming overconfident as it exceeds 0.10% per 8 hours, but not necessarily an alarming level.
As long as buyers are confident the rally will continue, paying a weekly fee of 1.5% or even 3% will not force them to close leveraged long positions. For example, if a shortage of Bitcoin supply on the exchanges caused the recent rally to $ 56,000 as holders pile up, there could be room for $ 80,000 or more.
However, a crash can be expected if certain bearish events occur in the near future, such as denial of requests for exchange traded funds or a draconian US ban on stablecoins. In such a case, Bitcoin will not break the all-time high, and these retrograde measures will eventually “work”.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.