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Bitcoin is testing a key tech support level at $ 30,000 after falling 10% on Tuesday. The popular cryptocurrency could drop further to $ 20,000 if the support level does not hold. Alternatively, a successful test of the $ 30,000 support level could push bitcoin back up to $ 40,000. Sign up here for our daily newsletter, 10 things before the opening bell.
Bitcoin faces a watershed moment after falling as much as 10% on Tuesday below the key technical support level of $ 30,000.
The threshold has been a key line in the sand for technical analysts as it represented strong support for the cryptocurrency during its ongoing bull run in January.
A key tenet of technical analysis is that old support becomes new resistance in a downtrend, and old resistance becomes new support in an uptrend. Bitcoin has been in a well-defined downtrend since it peaked at around $ 65,000 in mid-April, and its recent death cross over the weekend favors a continuation of this downtrend.
Therefore, if bitcoin prints consecutive daily closes significantly below the $ 30,000 level, it sets up the cryptocurrency for a test of its $ 20,000 breakout level in December 2020. A drop to $ 20,000 would represent a potential decrease of 32% from current levels.
Bitcoin fell to $ 29,333.94 on Tuesday morning before cutting some losses back to nearly $ 30,000. The coin’s multi-day decline came amid negative headlines about China’s ban on bitcoin mining operations across the country.
Alternatively, bitcoin could successfully test $ 30,000 again as support and rebound higher, as it has done several times in May and June. A successful test of the support level would allow bitcoin to reach its next resistance level at $ 40,000, which is a potential increase of 35% from current levels.
Read more: Former Goldman trader presents 5 ‘sentimental highs’ he saw in bitcoin – and shares how far cryptocurrency needs to go down before he’s interested in buying the downside
But there is a worrying sign that the next move in bitcoin could favor bears: a bearish head-and-shoulders pattern.
A head-and-shoulders pattern often signals a reversal of a stock following an uptrend. The pattern takes its shape from a series of three vertices, with the second vertex being the highest of the three. A neckline represents support and is formed by connecting the three stockings associated with peaks.
When the stock crosses below its neck line, a sell signal is triggered for traders. Bitcoin has been trading just above this cleavage since Tuesday morning.
Traders will be watching closely if demand for bitcoin hits the $ 30,000 price level. And given the increased volatility of bitcoin, it is crucial to focus on daily consecutive close above or below the key level before making trading decisions. Bitcoin has a knack for creating fakes at key support and resistance levels.
Stockcharts.com
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