Bitcoin (BTC) just closed the weekly candle below its 50 week moving average. This is a very bearish development considering BTC/USD is already heavily overbought on the weekly time frame. The weekly chart shows that the price is trading near the upper extremity of the Bollinger bands within a rising wedge. Soon as this rising wedge breaks to the downside, BTC/USD could see a massive decline that could pull it down to its 200 week moving average. There is no denying that we might see a sharp decline sooner or later and that BTC/USD has been long overdue for a major retracement. However, at the same time the retail bears seem to have become too confident, too soon. This gives the market makers and whales the upper hand to decide how long the price remains in this zone and how far it goes before the next decline.
This is the most ideal setup for whales that prey on both the retail bulls and bears. They could stage a short squeeze to put most bears out of their positions while at the same time luring bulls into the trap before the next fall. It is very rare to see both the bulls and the bears fighting this hard for a certain outcome. The bulls badly want to see the price above $6,000 while the bears want to see it below $1,800 like yesterday. The bulls have become careful with their positions after the recent pullback but the bears have become even more confident and are opening margined shorts at what could be considered the wrong time. This is because BTC/USD has yet to test the previous market structure around $5,800-$6,000 and a lot could go wrong as that happens.
The weekly chart for BTCUSDShorts shows the state of bearish euphoria. The number of margined shorts has been shooting up dramatically for the past two weeks. The weekly RSI for BTCUSDShorts is now close to overbought territory. While this does not mean that BTC/USD cannot fall further or BTCUSDShorts cannot keep on rising, it does mean that entering a short position at this point is now very risky. The whales have the opportunity to stage a short squeeze that would lead to a big pump in the price of Bitcoin (BTC) on the backs of dead bears that will be forced out of their positions as their stops are hit. Both the bulls and the bears are going to fight hard at this level as the fate of Bitcoin (BTC) for the months and years to come depends on it.
If we break above the $6,000 level and start rallying from there forming higher highs and higher lows that would mean something very different for BTC/USD long term compared to if the price faces a rejection at $6,000 and starts to fall. We expect the price to face a rejection at $5,800-$6,000 because it is too strong a resistance zone to be breached under such overbought conditions. Furthermore, the world is heading into some political conflicts that could have a serious impact on the stock market and therefore on Bitcoin (BTC).
If the US-Iran fiasco escalates to a conflict, we could see a big impact on the price of oil which will in turn reflect in the S&P 500 and as the S&P 500 declines, we could see Bitcoin (BTC) nosedive. The situation with China could worsen after the recent sanctions imposed by US on Iranian oil. It would not take much for the S&P 500 to fall like a house of cards soon as one of these catalysts triggers the next decline. Certainly, BTC/USD will be hit even harder when that happens but even if we look at Bitcoin (BTC)’s own charts, we can see that each cycle takes longer than the preceding one. This is why the current cycle has to be longer than the previous ones and the bear market is not over yet.