Tumbling bitcoin is testing the crucial $30,000 threshold - and its ability to stay above it could determine whether the plunge deepens or a rebound takes hold
Bitcoinis testing a key technical support level at $30,000 after falling as much as 10% on Tuesday.
- The popular
cryptocurrencycould see further downside to $20,000 if the support level doesn't hold.
- Alternatively, a successful test of the $30,000 support level could set bitcoin up for a surge back to $40,000.
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Bitcoin is facing a make-or-break 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 principle of technical analysis is the following: 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 around $65,000 in mid-April, and its recent death-cross over the weekend favors a continuation of that downtrend.
Therefore, if bitcoin prints consecutive daily closes decisively below the $30,000 level, it sets the cryptocurrency up for a test of its December 2020 breakout level of $20,000. A drop to $20,000 would represent potential downside of 32% from current levels.
Bitcoin tumbled as low as $29,333.94 on Tuesday morning before paring some losses to trade back up near $30,000. The coin's multiday decline has come amid negative headlines about China banning bitcoin mining operations throughout the country.
Alternatively, bitcoin could once again successfully test $30,000 as support and bounce higher, as it did multiple times throughout May and June. A successful test of the support level would set bitcoin up for a rise to its next resistance level at $40,000, representing potential upside of 35% from current levels.
But there is one worrying sign that the next move in bitcoin might favor the bears: a bearish head and shoulders topping pattern.
A head-and-shoulders topping pattern often signals a reversal in a security following a bullish trend. The pattern takes its shape from a series of three tops, with the second top being the highest of the three. A neckline represents support and is formed by connecting the three bottoms associated with the peaks.
When the stock breaks below its neckline, a sell signal is triggered for traders. Bitcoin is
Traders will be closely watching if demand for bitcoin comes in at the $30,000 price level. And given bitcoin's heightened volatility, it's crucial to focus on daily consecutive closes above or below the key level before making any trading decisions. Bitcoin has a knack for creating head fakes at key levels of support and resistance.
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