The price of Bitcoin (BTC) surged towards $24,200 on July 28 after a nearly 10.5% rally that started a day earlier.
The gains emerged after Federal Reserve Chairman Jerome Powell signaled his intention to slow down his current tightening spree. They prompted some Bitcoin analysts to predict a short-term upside continuation, with CryptoHamster seeing BTC at $26,000 next.
It looks like the bearish breakout was false, and the bullish flag has been validated. Let’s see how fast $BTC can achieve these goals. #bitcoin $BTCUSD $ETH $ETHUSD #ビットコイン #bitcoin #比特币 https://t.co/v6x4Ka23L7 pic.twitter.com/nKoEV8440X
– CryptoHamster (@CryptoHamsterIO) July 28, 2022
But the potential for BTC to fully recover from its ongoing bearish sleep appears weak for at least three main reasons.
Bitcoin Bulls Have Been Duped Before
Bitcoin set its all-time high of $69,000 in November 2022. Since then, the cryptocurrency has fallen over 60% while experiencing several mini-pumps along the way.
On the daily chart, Bitcoin has rebounded at least five times since November 2021, securing gains of 23% to 40% each time. Nevertheless, it continued its correction each time after forming a local price top around its exponential moving averages (EMA) and then falling to new yearly lows.
This time looks no different, with Bitcoin facing a bullish rejection in June and recovering nearly 17% a month later. Notably, BTC price is facing tentative resistance in its 50-day EMA (the red wave) at around $23,150, with a breakout working its way towards $27,000, coinciding with the 100-day EMA ( black).
At $27,000, the price would still form a lower high from previous local highs. So this technically raises the possibility of another bearish continuation move.
High sales, low purchase volume
Interestingly, the behavior of volume during the ongoing Bitcoin correction shows greater interest in selling the coin at local highs.
The daily chart below illustrates this by highlighting volume readings during downtrends and uptrends since November 2021. For example, the last two major price declines in May and June coincided with a sharp increase in volumes of sale.
By comparison, the rebounds following these price declines have accompanied modest to lower trading volumes. The behavior of ongoing volume appears the same, peaking during the downtrend and falling as the price recovers.
This suggests weakening bullish momentum, which could lead to a further price correction.
Correlation between BTC and stocks turns positive again
Bitcoin follows stock market trends again despite a brief decoupling in early July.
For example, on July 28, the overnight correlation coefficient between Bitcoin and the tech-heavy Nasdaq Composite was close to 0.66. This includes declines in both markets after US GDP fell for a second straight quarter.
This officially confirms that the United States has entered a “technical recession”, which could weigh negatively on the stock market. Therefore, Bitcoin’s downside outlook looks high if its positive correlation with the stock market continues.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.