Bitcoin’s brief period of consolidation has opened a path for select altcoins to rally higher.
Bitcoin (BTC) price has yet to recapture the $40,000 level and traders who were expecting a quick resumption of the uptrend may have been caught off guard by the recent pullback. This could have led to the liquidation of about $500 million worth of cryptocurrency futures positions in the past 24 hours.
Over leveraged positions provide the necessary ammunition during the uptrend, but they become a liability when the trend reaches an inflection point.
When the markets turn down, leveraged long positions quickly turn into a loss, resulting in margin calls from brokers. When the margin requirements are not met, the brokers dump the positions at market price, leading to a sharp plunge.
Therefore, data indicating a reduction in leveraged Bitcoin positions in the past few days is a positive sign as it decreases the risk of cascading liquidati.
While a sharp fall is usually avoided when the markets are not overleveraged, sustained buying is needed to maintain the higher levels. If that does not happen, the price continues to correct gradually.
Grayscale Investments has been one of the major buyers in the past few months but they now have a new competitor, Osprey Funds, which began quoting in the over-the-counter market on Jan. 15 under the ticker symbol OBTC. The firm is offering a competitive management fee structure compared to Grayscale.
This is a positive sign for crypto markets because if both these firms attract institutional investors, the buying may resume and Bitcoin can reverse course to pursue new highs.
While Bitcoin remains stuck in a range, select altcoins are running hard. Let’s study the charts of the top-5 cryptocurrencies that may be favored by the bulls in the next few days.
BTC/USD
Bitcoin is currently consolidating in an uptrend. The price action of the past few days has formed a symmetrical triangle, which generally acts as a continuation pattern. The long tail on today’s candlestick shows the bulls are buying the dips to the 20-day exponential moving average ($34,241).
The upsloping moving averages and the relative strength index (RSI) in the positive territory suggest that bulls are in control. If the buyers can push the price above the triangle, the next leg of the uptrend could begin.
The first stop could be the current all-time high at $41,959.63, but if the bulls can propel the price above it, the BTC/USD pair may rally towards the pattern target at $50,000.
Contrary to this assumption, if the rebound fails to find buyers at higher levels, the bears may try to sink the price below the triangle. If they succeed, the pair may drop to the 38.2% Fibonacci retracement level at $29,688.10.
This level may attract buyers but if the bulls fail to push the price above the 20-day EMA, then the correction could deepen to the 50-day simple moving average ($26,581).
The 4-hour chart shows that the bulls have purchased the drop to the support line of the symmetrical triangle but they may face resistance at the moving averages that are sloping down.
If the price turns down from the moving averages, the bears will try to sink the price below the triangle. If they succeed, a deeper correction is likely.
On the contrary, if the bulls can push the price above the moving averages, the pair may rise to the resistance line of the symmetrical triangle. A breakout of this resistance may start the uptrend.
However, if the price turns down from the resistance line of the triangle, the pair may trade inside the triangle for a few more days.