An Increased level of adoption has recently made it possible for the price of one Bitcoin to reach a new all-time high recently, trading very close to the magical $20k level.
Why magical? Back in 2017, still on a December, Bitcoin’s parabolic rise stopped at similar levels. Because it did so this year too, technical analysts wonder if it is possible for Bitcoin to have formed a double top? A double top pattern shows one level or area where the market hesitates twice, being rejected at strong resistance.
Bitcoin Halving, Ethereum, and What to Expect Next?
One of the biggest surprises of the year on the crypto market was Ethereum’s strong performance. It rose over 300% since May, outperforming Bitcoin, which rose “only” 200%. The relationship makes no sense if considering the halving thesis in the case of Bitcoin. If the halving thesis is valid, Bitcoin should have outperformed Ethereum, and not the other way around.
It means that something is strange in the two cryptocurrencies. Is it Bitcoin that lags momentum, or just that the short squeeze on Ethereum was stronger?
The $10k level proved to be pivotal for Bitcoin in 2020. In fact, it is common for round numbers to have a psychological effect on market participants. One of the most famous biases in trading is that people tend to enter and exit the market at round numbers. For example, if one is bearish the EURUSD pair at 1.2121 will likely set the stop-loss at 1.22 and target 1.20 – round numbers.
In the cryptocurrency market, though, volatility is much higher than in the FX market. Round numbers like $10k and 20k are important enough to offer strong support and resistance. Also, the fact that Bitcoin’s bullish trend was strong enough to travel that distance in less than two months, tells us much about the differences between the two markets.
The problem with Bitcoin and other important cryptocurrencies is that no one is selling. As such, any drop in price is met with strong demand from the retail community. However, as March 2020 showed, when the USD liquidity shrinks, investors flee even from the safety offered by Bitcoin.
Moving forward, Bitcoin has a chance to mature only if it manages to invalidate the double top thesis. To do so, it must hold above $17,500 and continue to consolidate. In doing so, it puts pressure on the round number. In failing to do so, it will put pressure on those that bought close to the $20k level and who will sell at the first sign of a precipitated drop in price.