The price of Bitcoin officially surpassed $10,400 on July 27, breaking out of a multiyear range as a result. Traders are now mixed on where Bitcoin’s (BTC) price will go next, as many indicators and data points show conflicting trends.
The general sentiment around Bitcoin and the cryptocurrency industry has been positive since April. The United States Office of the Comptroller of the Currency granted banks permission to operate crypto custody services, institutional investors have continuously invested in Bitcoin and other top cryptocurrencies through Grayscale, and most recently, the Tether (USDT) stablecoin saw its largest inflow in eight months.
A confluence of strong fundamental factors related to regulation and infrastructure has seemingly improved the perception of Bitcoin by the mainstream. That has coincided with an increase in liquidity triggered by high Tether inflow and the recovery of futures market open interest. A rising inflow of Tether is an important metric due to it being the largest stablecoin in the cryptocurrency market. The numbers suggest that the demand for the stablecoin is increasing, indicating a growing appetite for crypto assets.
Some macro factors could have fueled the demand for Bitcoin in recent months. Since April, the U.S. dollar has been in decline relative to other major reserve currencies. Investors such as billionaire Ray Dalio have pointed at the ongoing dispute between the U.S. and China as the biggest factor. As the U.S. dollar has dropped, the price of gold has gone up. Historically, a weak dollar has caused the stock market to underperform, which would, in theory, boost gold. Given the recent price correlation between gold and Bitcoin, there is a chance that a weakening dollar will indirectly benefit BTC.
The correlation between Bitcoin and gold in recent months. Source: Skew.com
Based on market structure, traders expect the price of Bitcoin to range in the near term. BTC has broken out of a critical resistance level at $10,500. After such a powerful upward price movement, some stability would cool down the market. Michaël van de Poppe, a full-time trader at the Amsterdam Stock Exchange and a Cointelegraph contributor, said that Bitcoin could soon see a new range. Considering that $12,000 has acted as strong resistance in the past, van de Poppe suggested a $9,700–$12,000 range could materialize.
A new Bitcoin range could form. Source: Michaël van de Poppe
As Bitcoin saw an explosive upward price movement, trading volumes surged in tandem. According to Skew, July 27 was the second-highest volume day in the history of Bitcoin. As BTC comes off a record-setting rally, below is an overview of bullish and bearish scenarios that could impact price in the near term.
Bullish scenarios for Bitcoin in the short to medium term
Some traders and investors foresee a continuation of the ongoing Bitcoin rally. According to the cryptocurrency trader known as Ethereum Jack, BTC recently saw a clean breakout. It marked the fifth upsurge to a resistance level that has held up since September 2019. The trader emphasized that the price trend of Bitcoin could become overextended if the rally resumes, but he noted that it has all the characteristics of a prolonged uptrend:
“$BTC giving the cleanest breakout-retest setup I have seen in a very long time whilst each corrective wave since 4K has been vertical re-accumulation. This has all characteristics for a strongly extended fifth — aside from BTC generally loving extended fifths.”
Cryptocurrency trader Koroush AK said that Bitcoin currently has three bullish arguments. First, the 0.618 Fibonacci level measured in between $9,300 and $11,421 has to hold. The 0.618 level marks an important level in the Fibonacci retracement system, and it typically leads to a trend reversal when breached. Second, the $10,400 level acts as robust horizontal support. Third, as long as the $10,170 level is kept, the argument for a higher low is intact.
In simple terms, Koroush AK believes that if the price of Bitcoin stays above $10,170, $10,400 and $10,622, the price trend will remain bullish. The $10,170 level, or a higher low, is particularly critical in technical analysis, as it suggests a strong uptrend. A higher-low pattern forms when the most recent low point of an asset is higher than the previous low points.
A breakdown of key levels for Bitcoin in the short-term. Source: Koroush AK
Similarly, the Bitcoin trader known as Satoshi Flipper suggested that there is little resistance between $10,886 and $11,400. As BTC comes fresh off of a breakout above $11,000 for the first time since August 2019, traders seemingly anticipate volatility in the newfound range.
Apart from fundamentals, technology researcher Kevin Rook emphasized that the “HODLing” level of Bitcoin is at a record high. That metric indicates that many long-term holders of BTC are reluctant to sell the top cryptocurrency. It could show that BTC is currently in an accumulation phase, with Rook stating: “62% of Bitcoin supply (11,400,000 BTC) has not moved in at least a year. The speculators are gone, HODLing is at an all-time high.” The first major breakout in nearly 11 months, an increase in long-term BTC holders and a favorable market structure strengthen the bullish outlook on Bitcoin.
Bearish cases for BTC in the near term
In the near term, however, some traders expect a cool-off in the cryptocurrency market. Following a large Bitcoin price upsurge, various metrics suggest that the rally is overextended. The most prominent metric of all is likely the funding rate.
Bitcoin futures contracts without expiration dates are called perpetual swaps. They are the most utilized futures contracts in the cryptocurrency market, as they are less complex to trade. But the lack of expiration dates is balanced with a mechanism called funding, which forces long or short contract holders to pay their counterpart a fee once every eight hours, depending on market sentiment.
When the funding rate of Bitcoin perpetual swaps turns positive, it means the majority of the market is long on BTC’s price. For instance, BitMEX has shown a funding rate of around 0.077% for Bitcoin perpetual swaps in the last two days. That shows that the overwhelming majority of the market is longing BTC, leaving the cryptocurrency vulnerable to a potential long squeeze.
Bitcoin perpetual swap funding rates across major exchanges. Source: Skew
Some traders state that the funding rates of perpetual swaps are simply too high to be sustained. Referring to the funding rates, the cryptocurrency trader known as Byzantine General said, “This needs to cool off for a bit.”
In terms of market structure, Bitcoin technical analyst Crypto Capo said BTC could confirm its uptrend if it stays above $10,500 and establishes it as a clear level of support. But if BTC rejects in the short term and drops below the level, he said there is a chance of a UTAD forming. A UTAD, meaning “upthrust after distribution,” is a pattern that is a part of the Wyckoff Method. It forms when an asset demonstrates a fakeout and proceeds to pull back. Several traders believe that there is still a small chance that the entire uptrend of BTC is a fake rally. StockCharts describes a UTAD as:
“A UT or UTAD allows large interests to mislead the public about the future trend direction and, subsequently, sell additional shares at elevated prices to such break-out traders and investors before the markdown begins.”
Another well-known cryptocurrency trader known as CryptoWhale said that the sentiment around the Bitcoin market is too fearful. The trader noted that the BTC rally follows “months of red” and that the cryptocurrency will probably see a correction.
Overall, the market is seemingly divided between traders who believe the rally is overextended and those who see a continuation. There are viable reasons to support both arguments, as funding rates signal an overheated market and BTC’s stability above $10,500 indicates strong momentum.