After breaking its 3-month-old bearish trend line at the start of this month, there was optimism that Bitcoin had bottomed out. But that optimism quickly faded as the largest digital coin and other cryptos couldn’t decouple from equities as investors shun risk. We saw stocks drop sharply along with cryptos and government bonds, as yields rose on speculation about several rate increases from the likes of Federal Reserve, Bank of England and many other central banks in 2022. Inflation concerns outweighed optimism about a global recovery after the omicron variant scare.
While there are still no clear signs of a turnaround, Bitcoin bulls have stepped in right where they should have today, providing us with a glimmer of hope that perhaps the cryptocurrency has already bottomed out. We need to see confirmation now in the former of bullish price action from here on.
Bitcoin bounces off key support
Specifically, BTC/USD had found support off the $37K area, which was the base of the previous breakout in early Feb. Not only that, but this is also where the 61.8% Fibonacci retracement level comes into play:
Source: ThinkMarkets and TradingView.com.
After major reversals take place, price usually retraces deep – to around 61.8 or 78.6 percent against the impulsive move – before resuming in the direction of the reversal, in this case upwards. So, we now need to see evidence of the turnaround by price going on to break a few resistance levels. The first such area is shaded in red on the chart, around $40K, was being tested at the time of writing.
A decisive close north of $40K will thus provide us the first major clue that the market has indeed bottomed out. But all bets would be off if the blue shaded region breaks first.
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