Market decline

Should Bitcoin Traders Really Be Worried About A Major Market Drop

Disclaimer: The conclusions of the following analysis are the sole opinions of the author and should not be construed as investment advice.

So far, Bitcoin has seen highs and lows in 2021. The first and second quarters started on a positive note as Bitcoin continued to climb to more recent highs each month. On the flip side, Q3 hasn’t been so kind to the world’s biggest digital asset. In May, BTC fell more than 50% and struggled against a bear market that lasted for more than two months. Since then, however, Bitcoin has done well to recover.

A rally started at the end of July and the price caps of $ 42,000, $ 44,000 and $ 48,000 were gradually exceeded thanks to strong buying pressure. To stabilize this sporadic jump, a lightning crash was observed on September 7, with BTC falling 19% from a value close to $ 53,000.

Now, some market watchers believe that BTC is entering a new phase of the bear market. In some ways, their opinion may also be somewhat justified. For example, the Fear and Greed Index went from a reading of 78 last month to its press time value of 48.

However, it is important to note that this index has increased over the past week. In fact, some of BTC’s metrics are starting to show positive signs as well. Ergo, it may be too early to call for a bearish scenario.

Bitcoin Daily Charts

Source: BTC / USD, TradingView

According to Bitcoin’s EMA ribbons, the price is still in an uptrend. Despite recent corrections, BTC has managed to close within these moving average lines, although a few candlesticks have noted strong sell sessions.

Additionally, the contracted nature of these bands suggests that a phase of consolidation is underway, as opposed to a downtrend. In fact, the price is still above the 50% Fibonacci level, which is often seen as a key area of ​​bullish control.

If the price maintains its current level, BTC would be poised to challenge the 138.2%, 161.8% and 200% Fibonacci extensions in the following months.

For a bearish argument, BTC should close below $ 42,000- $ 40,000. This would drag the price down to the lows seen in June and July.

Reasoning

Many fears stem from the fact that BTC’s RSI has been declining since the end of July, even though the price has been pushed up. After all, it is a sign of a weakening tendency. However, the RSI is not yet in bearish territory. The index rebounded from 45 and tried to move back into its bullish channel – a sign that the bulls were resisting selling pressure.

Additionally, the Squeeze Momentum indicator was moving back towards the half line – an indication that sellers are running out of steam. A green bar followed by a white would even offer buy signals for bullish traders.

Conclusion

While there is reason to fear a prolonged market downturn, such arguments are not yet justified. BTC is trading above important areas and its metrics have improved.

If BTC holds up, the price will be on track to tackle the 138.2%, 161.8% and 200% Fibonacci extensions in the coming months.


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