Bitcoin (BTC) starts an important week in a fragile position as the price action of BTC in 2023 appears to be heading towards a “double top” formation. After a disappointing weekly close below $26,000, the BTC/USD pair is struggling to gain strength amid a return to low volatility conditions in the market. Analysts, who were already predicting a decline, continue to forecast new local lows, and market liquidity conditions are increasingly supporting their arguments. Is there any hope on the horizon? An on-chain metric suggests that Bitcoin is “in the middle” of a shakeout similar to the crash of March 2020. A recovery to “fair value” may also be courtesy of Bitcoin’s relative strength index (RSI), which has retraced nearly completely to reach its lowest levels since the first week of January. Cointelegraph takes a look at these topics and more in the weekly summary of key Bitcoin price triggers in the coming days.
Weekly closing confirms Bitcoin’s double top price as a reality
The weekly closing of Bitcoin below key market trendlines was expected, but the reality may be worse than many would like to admit. This is the conclusion of popular trader and analyst Rekt Capital, who warned that a close below $26,000 would “likely” validate a double-top structure on the BTC weekly chart. This claim is currently supported by the two local tops of Bitcoin in 2023, both above $31,000, with a pullback to $26,000 in between, according to data from Cointelegraph Markets Pro and TradingView. The weakness in BTC price now risks deepening due to the latest weekly close. “The weekly close below ~$26,000 likely confirms the Double Top breakdown,” wrote Rekt Capital in a post on X. A further analysis noted that $26,000 has served as support for three consecutive weeks, making the final decision about its fate significant on the weekly chart. Despite this, with the BTC/USD pair recording its lowest weekly close since March, popular chartist JT told his followers on X that there was still room for optimism. He argued that the Bitcoin price remained above the 200-week exponential moving average (EMA), near $25,600. “This week’s candle was a spinning doji, which is a candle that indicates indecision,” he wrote. “What is quite notable, however, is that the last three weekly closes had a $400 difference between them! That’s some boring and flat price action! The good news is that we closed well above our weekly 200EMA ($25.6k).” The Cointelegraph previously highlighted the importance of the 200-week EMA in the current BTC price environment.
Will the $20,000 gap in futures markets be filled next?
The recent decline in Bitcoin has reignited a debate about its ability to exhibit a classic chart pattern. Specifically, the cryptocurrency’s tendency to “fill gaps” in the CME futures markets that occur over weekends and holidays. These gaps refer to the difference in price between the closing of one week and the opening of the following week, which often acts as a magnet for future Bitcoin price action, although not always immediately. The BTC/USD pair typically fills these gaps within days or even hours after the resumption of futures markets, but over time, some gaps have been left behind. Currently, there is a significant gap looming at $20,000. According to Rekt Capital, this is the only real CME gap in terms of downward movement from current price levels. He explains that a gap from June 2022 has already been filled multiple times and has now turned into a new resistance level. Confirming the double top pattern mentioned earlier would also support a return to the $20,000 zone. This would create a potential price range for Bitcoin, with the $20,000 gap acting as support and the previously filled gap as resistance. However, some market participants are uncertain about the likelihood of revisiting such a distant gap. While Bitcoin does have a history of filling CME futures gaps, there is no guarantee that they will be filled, argues the popular trader Titan of Crypto. He mentions an unfilled gap below $10,000 and points out that there was a gap at $9,600 in September 2020 that many expected to fill, but it remains unfilled to this day. Therefore, while it is possible for the $20,000 to $21,000 gap to be filled, it is currently just a positive thought until the market structure is broken.
Increase in liquidity at March levels
The overall state of liquidity in the market also favors predictions of further Bitcoin price declines. Analyzing liquidity heatmaps is a common tool in cryptocurrency trading circles as it helps traders identify the concentrations of buying and selling for a particular asset and how they are manipulated by investors. Currently, a significant block of supply liquidity is gathering around $24,000 – the lowest concentration of this kind since March. “A dive into this liquidity zone below seems to have a reasonable probability,” predicted the pseudonymous user X, Honeybadger, while posting one of these heatmaps. Meanwhile, on the latest heatmap from the largest global trading exchange, Binance, the market monitoring resource profile, Material Indicators, continued to signal $24,750 as a key level for bulls to defend. “Whatever the case, bulls must defend the lows at $24,750 to maintain any hope of upside. Printing a new lower low buys a ticket to Bear Paradise,” part of the comment said.
US CPI Leads ‘Huge’ Week Ahead of FOMC Meeting
After a calm start to September, the macroeconomic landscape is once again becoming a potential source of volatility for risk assets. This week, the release of the US Consumer Price Index (CPI) for August will be in focus ahead of a critical decision on interest rates by the US Federal Reserve (Fed). “A huge week ahead of the September Fed meeting,” wrote the financial commentary resource The Kobeissi Letter in part of a preliminary comment, noting that “a lot of volatility” is on the horizon.
This is the last batch of inflation data before the Fed meeting. Expect to see lots of volatility this week. We’re publishing our trades for the week shortly. In 2022, our calls made 86%. Subscribe to access our analysis and see what we’re trading: [link to Kobeissi Letter’s website]
Due on September 14th, the CPI is well-known as a volatility catalyst for Bitcoin price action, but recent releases have failed to significantly change the market status quo. Nonetheless, cryptocurrency market participants include the CPI in their roadmaps as the number impacts market expectations about the Fed’s decision on benchmark interest rates.
The next Fed meeting will take place on September 20th, and according to the CME Group’s FedWatch Tool, confidence is high that rates will remain unchanged – which would be favorable for risk assets, including cryptocurrencies. As of September 11th, the chances of a pause in rate hikes were above 90%.
[Probability chart of Fed’s target rate. Source: CME Group].
Back to March 2020
As reported by Cointelegraph over the weekend, an on-chain metric is signaling that the current price action of Bitcoin may be more significant than traders believe.
The Unspent Transaction Outputs (UTXOs) in Loss, which measure the number of on-chain UTXOs with a value lower than their purchase price, are at their highest level since March 2020.
According to Glassnode, an on-chain analysis company, the UTXOs in Loss metric does not measure the amount of BTC that has accumulated losses, but rather the number of UTXOs involved.
However, an update from the on-chain analysis platform CryptoQuant warned that Bitcoin may be dealing with a “black swan” event similar to the one that caused the price of BTC to drop 60% over three years ago.
Given that the current level of the “UTXOs in Loss” indicator reflects the Black Swan event recorded between March and April 2020 (due to the Coronavirus), those anticipating another Black Swan event may consider whether we are already in the midst of the event they are expecting, wrote Woominkyu, a contributor to CryptoQuant.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk, and readers should conduct their own research when making a decision.