Bitcoin (BTC) price surged to $24,200 on July 28 after rising nearly 10.5% a day earlier.
The gains came after Federal Reserve Chair Jerome Powell signaled intentions to slow the Fed’s prevailing tightening frenzy. This prompted some Bitcoin analysts to predict a near-term continuation of the uptrend, with pseudonymous analyst CryptoHamster seeing BTC next at $26,000.
It seems that the downside break was false and the bullish flag was confirmed. Let’s see how fast $BTC can reach these goals. t.co/v6x4Ka23L7 pic.twitter.com/nKoEV8440X
— CryptoHamster (@CryptoHamsterIO) July 28, 2022
But BTC’s potential to fully recover from its ongoing bear slumber appears slim for at least three main reasons.
Bitcoin bulls have been scammed before
Bitcoin reached its record high of $69,000 in November 2022. Since then, the cryptocurrency has fallen more than 60% while undergoing multiple mini-pumps on its way down.
On the daily chart, bitcoin has rallied at least five times since November 2021, posting gains of 23% to 40% on each rally. Nonetheless, it has continued its correction each time after forming a local price top around its exponential moving averages (EMA) and then falling to new yearly lows.
BTC/USD daily price chart with fakeouts. Source: TradingView
This time around is no different as Bitcoin faced a bullish rejection in June and rallied nearly 17% a month later. Notably, BTC price is facing provisional resistance at its 50-day EMA (the red wave) around $23,150, with a breakout in the works towards $27,000 coinciding with the 100-day EMA (black). .
At $27,000, the price would still make a lower high compared to the previous local highs. That technically raises the possibility of another bearish continuation move.
High sell, low buy volume
Interestingly, during the ongoing Bitcoin correction, volume behavior shows a greater interest in selling the coin to local highs.
The daily chart below illustrates this by highlighting volume values during downtrends and uptrends since November 2021. For example, the last two major price declines in May and June coincided with a sharp increase in sales volumes.
BTC/USD daily price chart. Source: TradingView
In comparison, the follow-up is recovering from these price declines accompanied by modest to lower trading volumes. The sustained volume behavior looks the same, peaking during the downtrend and falling as the price recovers.
This indicates fading bullish momentum, which could lead to another price correction.
The correlation between BTC and stocks is turning positive
Bitcoin is once again following stock market trends, although it briefly decoupled from them in early July.
For example, on July 28, the daily correlation coefficient between Bitcoin and the tech-heavy Nasdaq Composite was near 0.66. These include declines in both markets after US gross domestic product (GDP) slumped for the second straight quarter.
Daily correlation coefficient of BTC/USD and NDAQ. Source: TradingView
This officially confirms that the US has entered a “technical recession” which could weigh negatively on the stock market. Therefore, Bitcoin’s downside prospects appear high if the positive correlation with the stock market holds.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
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