Bitcoin has taken investors on a wild ride by falling 53% over the past four months. But, let’s be honest. It wasn’t wild. It was normal. The crypto king is famous for flying and dying and has a history littered with 50%+ bear markets. But prices are up big over the past two trading sessions, and traders wonder if the bottom is in. Let’s explore.
First, by itself, ramping 19% over two sessions does not automatically mean the trend has turned – especially for bitcoin. Remember, the largest rallies occur in downtrends, not uptrends. What’s more important than the bounce size is what it did to the trend structure. Dis we break resistance? Did we change the momentum of the trend? Did we interrupt the series of lower pivot highs and lows in place?
If so, then it’s a good bet the trend is reversing.
If not, you can chalk the rebound up as noise and ignore it.
Fortunately for crypto lovers, the Bitcoin bounce qualifies as a potential trend change. Here’s why.
- First, it’s the biggest upswing since the downtrend began three months ago. That suggests the strength behind this recovery is difficult.
- Second, we broke and closed above the 20-day moving average for the first time during this downtrend.
- Third, we’re forming a higher pivot high with Monday’s follow-through.
- Fourth, we also breached the descending trendling that has defined the downtrend.
- Fifth, volume patterns are turning bullish. January 24th was a washoud in both the stock market and bitcoin. Ever since then, we’ve seen more accumulation than distribution.
Throw all the evidence together, and the daily trend now demands optimism over pessimism. Theh path of least resistance, in other words, has shifted from down to up.
Of course, this doesn’t mean bitcoin will rapidly return to its record high. But it doesn’t mean I’d be more interested in increasing exposure and shopping for bullish entries. In fact, My Team Phoenix lab did just that on Friday when /BTC was breaking out.
If you don’t want to buy bitcoin directly, I’ve foundn the Bitcoin Strategy ETF (BITO) to be a good proxy. For instance, this Monday afternoon, Bitcoin futures (/BTC) are up 8.5% and BITO closed up 8.88%.
But the availability of options is really what makes BITO attractive. The higher implied volatility (currently 77%) makes for compelling returns and wide profit ranges for strategies like naked puts and bull puts.
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