Bitcoin (BTC) has been exhibiting price action that contrasts sharply with the exhaustion of the uptrend seen at its record highs above $108,000 in mid-December. The key question on traders’ minds is whether Bitcoin’s recent price weakness has bottomed out or if further declines are on the horizon.
The current trend seems to suggest the former, as Monday’s price movement showed a quick recovery from intraday lows. This behavior stands in stark contrast to mid-December when the rally faltered and prices reversed after reaching the $108,000 mark.
On Monday, BTC initially faced downward pressure as investment banks reduced expectations for Federal Reserve rate cuts. Some even discussed the possibility of rate hikes following a strong U.S. jobs report from Friday, causing Bitcoin’s price to dip below the $90,000-$93,000 support range, coinciding with a pullback in major U.S. stock indices.
However, the breakdown of support proved to be short-lived. By the end of the day, Bitcoin had surged back to $94,000, forming a “long-legged Doji candle.” This candle pattern, marked by a long wick, suggests downtrend exhaustion, with buyers overcoming the initial downward momentum. It’s often interpreted as a sign that a bottom may be forming, especially when it appears at key support levels or after a significant price decline.
The appearance of the long-legged Doji at the support zone (represented by the horizontal lines) suggests a strong defense of the downside since late November. In contrast, on December 16, Bitcoin printed a Doji with a longer upper shadow at the record highs above $108,000, signaling that the bullish momentum had run out of steam and the sellers were beginning to regain control.
What’s next for Bitcoin?
While Monday’s price action hints that a bottom might be forming, confirmation is needed. A decisive move above the high of $95,900 on Monday would signal stronger bullish momentum, prompting traders to consider fresh buy orders. The $89,000 level, established as a key low on Monday, now serves as a crucial level for the bears to defend.
Bitcoin’s demand-supply dynamics remain bullish, with corporate demand for BTC outpacing the supply of newly mined coins, according to Andre Dragosch, Head of Research for Europe at Bitwise.
The market’s volatility may intensify after Wednesday’s U.S. Consumer Price Index (CPI) report, which is expected to influence expectations around future Federal Reserve rate cuts.
“Following Monday’s sharp drop, Bitcoin rebounded from a low of $89K, as traders await the U.S. CPI report on January 15. Major altcoins have followed Bitcoin’s lead, with many losing more in the past 24 hours,” said Neal Wen, Head of Global Business Development at Kronos Research. “Market participants are now focusing on signs of stability to determine if further downside or upside is on the horizon,” Wen added.
