Bitcoin at risk of falling back to $36K on bearish divergence fears

Bitcoin at risk of falling back to $36K on bearish divergence fears
Image by World Spectrum from Pixabay

Key takeaways

  • Analyst predicts a bearish divergence after a rising wedge
  • Bitcoin continues rising above $40,000
  • Market watchers are waiting for value investors to make the next move.

YEREVAN (CoinChapter.com) – A sharp drop may follow the bullish wave in Bitcoin since July 20. Multiple indicators confirm support at $37K and resistance at $42.

On July 28, trader and analyst from Amsterdam Stock Exchange, Michaëll van de Poppe shared a brief technical analysis of the BTC/USD pair predicting a bearish divergence.

Bearish drop to play out soon?

The analyst suggests that BTC has a history of forming bearish wedges before jumping to new highs. Whenever the price conquers a significant resistance level, a sharp downfall follows, if ever to recover or reach a higher resistance.

Lower supports follows breakouts.
Lower supports follows breakouts. Source: BTCUSTD 4-hour candles TradingView.com

Such patterns form in the market usually because short-term investors believe the established resistance levels are price peaks. To maximize profits, they feed into a selling momentum, driving the price down. 

However, this movement is profitable for strong-handed investors, HODLers who wait for others to succumb to fear to buy at the bottom of the wedge. 

This scenario is likely to repeat considering that HODLing and accumulation is historically the most profitable strategy in digital gold and, thus, has become the strategy of choice.

The net entities growth is positive, meaning that the size of those taking custody of Bitcoin grows faster than that of spenders. Meanwhile, the number of sending entities has been stagnant. This setup indicates that most of the volume transacted is accumulation.

Number of sending vs. receiving entities.
Number of sending vs. receiving entities. Source: Glassnode.com

Related: Bitcoin will reach $250,000 in 2021, crypto mogul Bobby Lee claims

BTC technicals 

At press time, the price continued to rise around $39,940, a 34% increase from last week’s low. After hitting the $40K resistance today, Bitcoin may proceed towards the second resistance level of $43K, as the Fibonacci pivot points suggest.

Related: Bitcoin back near $40K as economists expect Fed to stay dovish over delta variant fears

Alternatively, the resistance may play out longer and even break the momentum making the price drop toward the $37,000 price point. 

Furthermore, some investors use trendlines to identify support and resistance levels for the period of their choice. The trendline plotted since the last Fibonacci pivot seems to have been a resistance level for BTC since the start of the month. 

The recent developments may thus turn the upper border of the trendline into the new support level at $37K, coinciding with the previous forecasts.

Bitcoin technicals overview.
Bitcoin technicals overview. Source: BTCUSDT daily prices TradingView.com

Meanwhile, the relative strength index has just crossed the upper bound to indicate overselling. Since the all-time high in mid-April, RSI has climbed to this level for the first time. Considering the indicator’s history, especially this year, it may not stay above bounds for long.

However, short-term breaks like these are little evidence to predict new record-highs in Bitcoin. 

To make further forecasts, Coindesk surveyed several leaders of large crypto companies on the recent BTC movements. The respondents agreed that the upper bound of $42K might exhaust the potential of current short-term investors. 

The involvement of value-investors, including institutional ones, can break this resistance.

“Only a conclusive break above $50,000 in BTC would attract fresh flows and signal a change in the broader direction for the market.”

Pankaj Balani, CEO of Delta Exchange

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