Bitcoin (BTC) had a steep decline yesterday. During the last hour of trading, it plunged further into the red. This marks the completion of the final wave of capitulation. Bitcoin (BTC) has now begun the day in green. However, all of this happened for a reason. First of all, BTC/USD was trading in a big rising wedge on the 4H chart. It had to break below it at some point. Most news outlets linked the fall to a stock market meltdown, but it had little to do with that. It is possible though that investor (s) with large stakes in Bitcoin (BTC) feared a correlation and panic sold. However, in this market, one man’s loss is another man’s gain. The dumped Bitcoins (BTC) were happily picked by other investors and the price started rising again.
The price of Bitcoin (BTC) has been trying to break out of the downtrend since the beginning of this correction. All attempts have failed so far. However, the lower Bitcoin (BTC) falls, the easier it gets to break the downtrend. Recently, Bitcoin (BTC) attempted to break the downtrend in July. This means the price had to rise from $6,000 all the way to $8,000 and then have enough momentum to break the downtrend. As expected, this had a very small chance of happening. In August, Bitcoin (BTC) tried again as this time the range had become narrower. However, it still could not break the downtrend. It tried once more in September, hit the downtrend in October and fell back yesterday. Now, the price is back at the trend line. It will have another go at breaking the downtrend resistance in the next few days.
There is very little chance of a breakout to the downside. If you look at the above chart for BTC/USD, you will see that the long bearish waves are fading away. The pattern you see is similar to a coil spring being forced into the ground. When you remove the downward pressure, it will shoot up aggressively. The same is going on with Bitcoin (BTC). The bears are getting tired and there is not much room left to apply more pressure. Consider this coil spring lying inside a cone shaped hole. At the top, you need to apply less pressure and your hand can easily push the coil spring down the conical hole. However, the lower you go, not only does the tension inside the coil push your hand out, but it also becomes difficult to get your hand inside the hole as it narrows.
Now, it is up to you to decide when to stop applying pressure, because there can be serious consequences. Let’s say you decide to push the coil spring down to the full extent inside the conical hole. As you keep applying pressure, you will reach a point where you will realize that the coil spring has amassed enormous tension but all of a sudden your hand is no more in contact with the coil because your hand can no longer go down the shrinking conical hole. That is the exact moment when the coil spring bounces back in your face and you regret it immediately, but by then it is too late.