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After maintaining in the $46k-$49k range for the past week, Bitcoin’s price recently surpassed $50,000. The price behaviour of the king coin has surely given the bulls reason to cheer. Should traders and investors, however, rejoice too soon? So, until the pattern is confirmed, it is important to be extra careful.
Are we looking at a dead cat bounce?
The aforementioned recovery has evidently stirred a fair share of optimism among market participants. However, at this stage, it should be noted that Bitcoin is still below its $51k resistance level. What’s more, in retrospect, a handful of critics have suggested that the ongoing surge is merely a dead cat bounce.
A dead cat bounce is considered to be a continuation pattern. Here, at first, the bounce may appear to be a reversal of the prevailing trend but it is quickly followed by a continuation of the downward price action. Right now, however, the odds of such a situation unfolding look fairly unlikely, primarily because of a couple of reasons.
One, Bitcoin has been trading above all its moving averages, right from the 20 and 50-day to the 100 and 200-day. This reasonably projects a bullish confirmation. Usually, a retracement from these levels invalidates the optimistic narrative and paves the way to hikes becoming dead cat bounces.
Further, the current state of a host of other indicators too supported the same narrative.
So, is the market heading towards another top?
In short, yes. Well, every bull run to date has concluded with the 2-year moving average multiplier remaining above or at least touching the red line. That being said, it should also be noted that the same has typically hovered mid-way during the nascent phase of any bull run. At the moment, the multiplier is somewhere in between and is inching towards the same threshold.
Ergo, keeping in mind the consistent northbound movement of the multiplier, it can be projected that the prevailing price hike is unlikely to be temporary.
Surprisingly, BTC’s price on the rainbow log chart has never entered the sell zone during this cycle. As the figure below shows, it did during the majority of other cycles. Nonetheless, it is important to note that the price has already moved from the ‘cheap’ to the ‘HODL’ zone and is on the verge of entering the ‘bubble’ zone.
When a similar scenario has occurred in the past, BTC’s price has reached the red zone. As a result, expecting something similar this time seems sense.
Furthermore, the nett unrealised profit and loss is an important indicator for confirming the direction of any ongoing trend. As shown in the attached chart, all past market peaks have been signalling with a cross into the ‘euphoria’ zone. In terms of the current state of this indicator, the NUPL has already crossed over into the greed zone from the denial/optimism zone. In reality, it is on its way to the top.
This estimate, too, suggests that Bitcoin’s price is on its way to a new high and will most likely give up before it reaches there.
Bitcoin has been around for a long time. Drawing conclusions from its historical records have, more often than not, hit the nail on the head. However, the market can end up acting irrationally as per its own whims and fancies.
It, therefore, is essential for market participants to evaluate entry-exit points and have an escape plan ready. Looking at the way things have played out in the past, this bullish phase is likely to stay until November.