- Bitcoin broke a week-long downtrend last night
- The alt market responded with gains, led by Ethereum also breaking resistance
- There could be further downside ahead despite the rally
Bitcoin broke a week-long downtrend last night to ease fears of a further collapse and allow beleaguered alts a little room to breathe. Having been contained in a descending wedge since dropping to the high $9,000s last week, Bitcoin broke out at the second time of asking and jumped to $10,400, with alts responding in kind. However, is this move the start of a genuine recovery or just the opening of a bull trap?
Bitcoin Rises Above
After its dramatic collapse from $12,000 last week Bitcoin was always going to need time to recover, and the first green shoots of such a recovery became evident last night as Bitcoin broke through the descending line of a wedge, but not before a fakeout to the downside:
With almost the entire crypto space calling for further downside it was almost inevitable that Bitcoin would do the opposite, with a drop to $9,850 on Tuesday acting as a catalyst for the move upwards.
Despite the many calls for further downside, the odds of a move north became shorter the more Bitcoin failed to oblige, and a week of holding in the $10,000 has, in the short term at least, proved to be a building of support rather than a pit stop on the way to doom.
Pullback on the Cards
Bitcoin is now operating in a short term channel between $10,440 and $9,850 and is now at a resistance area:
We should therefore not be surprised to see something of a pullback here, perhaps even back to the $10,000-$10,200 region, which will represent a real test of Bitcoin’s resilience. However, with traditional markets and gold staging a recovery and the DXY rejecting at a key resistance point, more upside to the $10,600 area cannot be ruled out.
Ethereum Paves the Way for Alt Gains
Ethereum also enjoyed a good night, finally managing to escape the $360 resistance line that was proving so hard to crack:
Having overcome it at the fifth time of asking, Ethereum has now reentered the channel that has existed since late July, the base of which has acted as support throughout that entire period. Hopefully this support will not turn into resistance and Ethereum can reclaim the channel with a view to further highs.
Other alts have responded well to the move, with almost every coin in the green to some extent and some big winners such as AMPL (74%), SOL (50%), and YFI (38%). Interestingly however despite these huge one day gains the Crypto Fear and Greed Index remains at 38, illustrating that the market is still in ‘fearful’ mood:
As we discussed earlier this week, when the Crypto Fear and Greed Index drops to the 40 range from a higher value after a rally, it almost always drops further. It may be therefore that we are in for a bull trap scenario where the market recovers slightly before heading further south, taking us down into the 20s and taking Bitcoin down to the $8,800s before the next wave can begin.