The price trends and patterns appearing on charts allow technical analysts to predict whether they might continue or reverse. The upcoming price behavior will be crucial for BTC, whose downward trend indicates a limited upside potential.
Cryptocurrencies are examples of a free market driven by supply and demand, as access is easy and information is available. That adds to human emotions like fear and greed to make those assets well suited for technical analysis.
In the stock market, fundamental analysts assess external factors like revenue, selling prices, and cost of goods that may affect the price. If the shares of a company traded below what they believe to be a fair value, it would be interesting to buy them.
Factors like the background of a specific cryptocurrency and the number of newly-mined and freely-traded coins help fundamental analysts determine its intrinsic value.
Technical analysts determine the profit or loss of an asset through the price an investor buys and sells. In addition, the trading activity in the market allows estimating the value.
Fear and Greed Guide the Behavior of Cryptocurrency Investors
External factors like news influence investors, as they always lead investors to review the price of the associated or related stock.
Cryptocurrencies have frequently been in the news, driving prices higher and creating a sentiment known as FOMO (fear of missing out). There have also been stories about regulations or countries banning cryptocurrency mining and trading that have affected prices negatively.
These events cause much excitement and drive buying and selling decisions. This buying and selling process creates trends that appear on the charts, which allows doing technical analysis.
Technical Analysis of the Price of Bitcoin
Technical analysts use charts to find price trends and try to predict whether they might continue or reverse. However, they also use subjective interpretations about specific tendencies and patterns appearing on the graphs.
The highs and lows on a chart contain crucial information, as they usually act as support or resistance levels. It is much easier to read a chart when translating support to demand and resistance to supply.
Technicians define an upward trend as a series of higher highs and higher lows contrary to a downward trend. Old highs and lows act as support (below the current market price) or resistance (above the current market price).
Prediction of the Price of Bitcoin
In March-April 2021, the Bitcoin price reached a high in the USD 65,000 area before pulling back below USD 30,000. The rally from the low of July 21st drove BTC higher, allowing it to reach the former level again in November.
Sellers dominated the market and could not push the price of BTC above USD 65,000. That additional supply created much resistance, causing a new spike at that level. Traders then started to take Bitcoin lower again until it hit the areas of the previous low below USD 30,000.
There was some hesitation when that old low started to act as support, attracting buyers. However, that lasted little as BTC broke below its support at around USD 30,000 in June 2022.
The price behavior in the coming weeks will be crucial for the short-term development of BTC. The most prominent trend is downward, which indicates a limited upside potential due to previous selling activity.
By Alexander Salazar
