The price of bitcoin (BTC) jumped sharply after hitting a local bottom on June 15. It’s close to a bullish breakout from a nearly three-month pattern
Despite this uptrend, wave analysis shows that the BTC exchange rate could fall even more. Thus, after the end of the relief rally, bitcoin may launch another sharp decline.
Bitcoin: a rebound, but not yet a victory
Technical analysis on the daily timeframe shows that bitcoin price has been falling inside a descending parallel channel since early April. Such channels are considered to be correction models. As a result, the most probable scenario for further price movement is a bullish breakout from this channel.
June 15 BTC bounced (green icon) from the area of converging support levels at $25,000. It is formed by the Fibonacci level of 0.382 retracement and horizontal support area. Such an amalgamation makes this area critical. After the rebound the price moved up to the channel resistance line.
Source: TradingView
In the meantime, the momentum RSI indicator has been fluctuating above and below the 50 mark since April 20 (highlighted on the chart). This is considered a sign of trend indecision.
We should remember that values above 50 and the upward trend of the indicator indicate that the bulls retain the advantage, while values below 50 indicate the opposite.. Although the RSI is below 50, it is rising, which is a sign of a neutral trend.
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BTC in light of wave analysis
In the meantime, wave analysis results indicate that further price declines are likely. While there are still two possible scenarios in play, both suggest that the price has not yet hit a low.
The price of BTC has been in a corrective W-X-Y (black) pattern since the end of May.
The BTC price has been correcting in a W-X-Y (black) correction pattern since late May. If this analysis is correct, then price is now in wave Y, which is the final wave before a bullish reversal.
There are three merger levels around $23,300 which make this level likely to complete the correction.
There are three confluence levels around $23,300 that make this level likely to complete the correction.
First, the $23,300 area coincides with the 0.5 Fibo support level of the correction (white). The principle underlying the Fibonacci retracement suggests that after a significant price movement in one direction, it can partially retreat and return to the previous price level before continuing in the original direction. Further, a low near $23,300 would give the W:Y waves an exact 1:1 ratio. Finally, this area coincides with the support line of the channel.
<Convergence of these levels is expected to be the bottom for BTC.
Source: TradingView
An alternative scenario assumes that the price of BTC completed the formation of the pattern of the leading diagonal from the April highs. Although the pattern is complete, the diagonal is part of a larger structure, either a corrective A wave or a bearish 1 wave.
As a consequence, this scenario could lead to a shorter-term rise. However, as soon as the rebound is over, a new sharp drop is expected, which will bring bitcoin down to the support area of at least $23,300, and possibly to $21,000.
Source: TradingView
Despite this bearish short-term outlook for BTC, a break above the yearly high of $31,000 (red line) would mean that the trend is bullish. In that case, the most likely scenario would be a strengthening of the price to $40,000.