Bitcoin bears and short-sellers who bet that the price of the No. 1 cryptocurrency would fall could be in for more pain. Crypto trader and analyst Rekt Capital tweeted Tuesday that the most recent BTC price action above $50,000 was the “ultimate bear trap.”
A bear trap is a false technical indication of a reversal from a down market to an up market that can lure unsuspecting investors. It’s often triggered by a decline that induces market participants to open short sales, which then lose value in a reversal when participants must cover the shorts.
The price of Bitcoin reached the key resistance level of $50,000 on Tuesday, Oct. 5 for the first time in a month. A resistance level is a key tool in technical analysis, indicating when an asset has reached a price level that market participants are unwilling to surpass. Resistance levels are often used in conjunction with support levels, or the point at which traders are unwilling to let an asset’s price drop much lower.
Stakeholders are debating whether bitcoin can hold or how far it can fall. Bitcoin was trading at $54,387.43 as of this writing, up around 33 percent from $41,000 a week ago and up more than 60 percent since a low in July.
Bitcoin has been working its way back to its previous April all-time high near $65,000 after China moved crypto markets lower in May by cracking down on crypto mining.
The cryptocurrency may soon be on its way to testing its April all-time high, wrote Katie Stockton, managing partner and founder of FairLead Strategies. “We expect short-term overbought conditions to be weathered long enough for a test of minor resistance near $52.9K, a breakout above which would target the all-time high,” Stockton said, according to a Bloomberg report.
“Looks like that Weekly Head and Shoulders was the ultimate Bear Trap,” Rekt Capital tweeted, referring to a head and shoulders pattern — a technical indicator that is considered one of the most reliable trend reversal patterns. Head and shoulders predicts a bullish-to-bearish trend reversal. The chart pattern has three peaks, with the outer two similar in height. In trading, head and shoulders signals, with varying degrees of accuracy, that an upward trend is nearing its end, according to Investopedia.
Decrypt editor-in-chief Dan Roberts spoke to YahooFinance about what may be driving the current Bitcoin bullishness. Fed Chairman Jay Powell was asked if the Federal Reserve plans to ban or restrict cryptocurrencies as China has, and Powell simply said no. “So that was encouraging to crypto traders,” Roberts said. “The Fed is not trying to go full China on crypto.” Then China banned Bitcoin two weeks ago. “You know, China kind of re-bans crypto every couple of months now. None of it is totally brand new…So every time that China does it, the price goes down. But now the price has rebounded as people start to realize, OK, nothing has really changed that drastically in terms of China’s stance on crypto.”
Roberts also cited Bank of America catching crypto fever. BofA said in a note that crypto is too big to ignore. Mainstream institutions that stayed away from crypto in the past are ready to dip a toe in, “even if it’s just 1% or 2%,” Roberts said, “and all of that has spurred the price hike that we’ve seen.”
Throwing cold water on that is the fear of regulation, Roberts said. “And every few days, it continues to loom. And every few days, you hear new comments from Gary Gensler (Chairman of the U.S. Securities and Exchange Commission).”
Gensler has compared crypto markets to the Wild West, mostly operating outside of regulations that seek to protect investors and consumers. The asset class is plagued by “fraud, scams and abuse,” and in order to survive, crypto markets must be policed, Gensler said in August in a prepared statement at the Aspen Security Forum. Gensler promised that the SEC will police crypto to the maximum possible extent.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?