In 2022, bitcoin ended the year down over 60%.
Considering the number of negative headlines we’ve seen, I’m surprised it wasn’t more.
And as we begin 2023, I’m not entirely convinced crypto is ready to make a roaring comeback quite yet.
But even in bear markets, there’ll be some rallies… and that’s exactly what my analysis tells me might happen with bitcoin right now.
Bitcoin’s Chart Is Revealing Potential
Let’s look at a price chart of bitcoin so I can walk you through it…
This is a daily timeframe chart of bitcoin. You’ll find three important features…
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An unfolding falling wedge (blue lines).
Falling wedges are typically reversal patterns. The trendlines of the pattern funnel prices to the point where the trendlines would cross one another. This point is known as the apex.
The closer prices get to the apex, the greater the odds of a bullish pop higher. A strong break out of the upper trendline of the pattern is a sign the falling wedge is complete.
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A bullish divergence (red line) in the Relative Strength Index (RSI).
As a market nears a top or bottom, the RSI will typically start diverging from the market’s price action.
Although prices have steadily declined since November 2021, the RSI registered its most extreme reading in the middle of June 2022.
Since then, the RSI hasn’t been able to make a lower low and has even started to trend higher. This kind of reading in the RSI is often a leading indicator.
Meaning, you’ll see divergence appear on a price chart before the market puts in a bottom and reverses.
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The 200-day moving average (MA – green line).
If bitcoin can break out of its falling wedge, then the 200-day MA would make for an excellent upside target.
As of writing, this MA comes in at around $24,310. If bitcoin can break above the 200-day MA, then that opens the door to the possibility of a longer and larger lasting recovery.
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One Step at a Time
My analysis tells me there’s a potential relief rally in the making for bitcoin.
Whether this rally will be the start of a new bull market – or just a temporary pause in an ongoing bear – remains to be seen.
First, let’s see if bitcoin bulls can break prices out of this falling wedge. If they can, then the focus will be on the 200-day MA.
If prices reach that target, then I’ll update you on what we can expect next.
Happy trading,
Imre Gams
Analyst, Market Minute
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