- The crypto market has enjoyed a $33 million rally since Saturday
- The price action takes us close to the resistance line of a downtrend that began in April last year
- We present three scenarios that could play out at this resistance
The crypto market continued its week-long rally over the weekend, with $33 million added since Saturday to take it back to a level of resistance that started back in April last year. What the market does from here will be telling for its mid-term future, so let’s look at the possible scenarios.
Support Line Holds Firm
The crypto market has been consolidating at the $750 million area ever since dropping there in early November thanks to the collapse of FTX:
A closer look shows us that the last week’s worth of gains, which total almost $50 million, have led us to hit the resistance level that began back in April 2022:
There are several scenarios that present themselves having been squeezed into this wedge. The first is that the crypto market overcomes this resistance and begins a bear market rally:
Bear market rallies are typical, indeed we saw one in 2019 when Bitcoin went from $3,500 to $14,000 and back to $3,500 again. Bear market rallies need no fundamental reason to happen, although any reduction in interest rate hikes from the Federal Reserve will help the narrative.
The second potential outlook is one of a rejection followed by further downside:
This is certainly an option, although with the crypto market being over a year into its bear market there is likely little selling left to be done, and the appetite for further downwards momentum has diminished since November wiped out so many holders.
If there were a strong fundamental reason to push the crypto market further down, such as the Federal Reserve taking more drastic action to curb inflation, then we could see this scenario playing out, assuming that traditional markets do the same.
The final scenario we could see is a repeat of late 2018:
In November 2018, having been quietly plodding along a line of support at $6,000 for three months, the Bitcoin price suddenly collapsed by 50%, bottoming out and leading to a bear rally to $14,000. There was no fundamental reason for this, it was simply manipulation and a selling cascade conducted in order to allow whales to buy back much cheaper.
It could be that the FTX collapse was this final flush (the timelines with 2018 would match up) but if the crypto market cap continues along this line for another few weeks then this proposition becomes more likely.
