After a decent rally this past weekend that saw Bitcoin surge by 10 percent, the price leveled off and has now begun to retrace. On Sunday Bitcoin quickly increased in price from below $8,000 to $8,944, where it faced strong resistance and begun to trade sideways in the $8,750 range. This morning the price has begun to drop slightly, reaching a low of $8,429.10 in the past hour.
Trend reversal incoming?
Yesterday, Bloomberg analyst Mike McGlone noted increasing volatility in the cryptocurrency market and the possible risks it presents. Bitcoin’s volatility is now at similar levels to that of December last year, after which the price began to rise consistently. However, this new volatility may be an indicator of an incoming trend reversal in the opposite direction.
“The market is getting a bit stretched here from a trader’s standpoint,” said McGlone, suggesting a possible bearish correction is on the cards.
McGlone is not alone in his prediction, with many analysts forecasting a trend reversal for Bitcoin over the past few weeks. Bitcoin’s average volatility throughout the month of May has been in the 4.5 percent range, which is considerably higher than previous months this year. In March, average volatility was as low as 1.1 percent.
Is the Bitcoin supply too limited?
Mati Greenspan, from trading platform eToro, believes there is still much demand for Bitcoin due to the limited supply and the upcoming halving event next year. A Bitcoin ‘halvening’ occurs every few years, when the BTC block reward for miners is halved and a surge in price usually follows.
However, Greenspan believes that due to the limited supply of only 21,000,000 coins, Bitcoin will struggle to ever replace the traditional banking system. In a recent tweet, he commented: “Pretty sure bitcoin won’t replace all banks. 21 million coins simply isn’t enough liquidity to support the global economy.”
BTC/USD Price Movements
In the unlikely event that more buying power enters the market in the next few hours, Bitcoin could give $9,000 another try. A break above this significant psychological level could push a run as far as $10,000.
However, indicators have now put Bitcoin in a more bearish position, with the likelihood of this current downtrend continuing to $8,300 before finding support. If $8,300 doesn’t hold and the downtrend continues through $8,000 then the 1-day Bollinger Band at $7,870 should provide the next support level.
Relative Strength Index (RSI) remains neutral, with the 5-day simple moving average (SMA5) and Stochastic indicator suggesting a potential decrease in price in the short-term.