Bitcoin continued its weekly bull run into the early Thursday session in Asia but met modest selling pressure as its price attempted to topple a short-term resistance level.
The flagship cryptocurrency brief breached $38,000 before turning lower ahead of the European market open. That marked its second attempt in less than a week to break bullish on the said level, raising possibilities of a potential Double Top formation on shorter timeframes.
In retrospect, a Double Top formation occurs when an asset forms a high price two consecutive times with a moderate decline between the two peaks. That increases its potential to revisit the support common between the two peaks, followed by an extended bearish breakout.
Bitcoin is halfway forming the Double Top setup, confirmed by its latest pullback from the $38,000-levels. If the pattern holds well, the cryptocurrency risks declining to the support level highlighted with the horizontal support line in red above. It is roughly near $32,500, but the levels may vary based on recent bearish wicks.
Meanwhile, a breakout attempt could turn the support level into a resistance one. It would then provide additional selling pressure as the price eyes deeper ‘Double Top’ targets.
Tailwinds
A recovering US dollar index provides more enduring tailwinds to a potential Bitcoin pullback. Of late, the benchmark index, which measures the greenback’s strength against a basket of top foreign currencies, has risen against expectations, taking cues from a positive growth outlook in the US and a weakening one in Europe.
Bitcoin, which typically trades inversely to the dollar, could ease its recent gains if the dollar continues its recovery upward. Technically, the greenback has broken out of its Falling Wedge structure (a bullish reversal sign) and is now attempting a close above its 20-week moving average at around 91.5.
Long-term, the US dollar may continue to feel the downward pressure from abnormal dovish policies put forth by the Federal Reserve and the US government’s $1.9 trillion stimulus package. That expects to effectively reduce the greenback’s purchasing power, aiding riskier assets such as stocks, gold, and bitcoin.
“The support base has risen toward $30,000 on increasing institutional adoption and the potential for the benchmark to become a global reserve asset, outweighing risks of failure,” said Mike McGlone, the senior commodity strategist at Bloomberg, on Bitcoin. “Fintech and greater speculation is the broader crypto-market narrative.”
Bitcoin Wedge
That said, it should be noted that Bitcoin is also attempting to break out of a Falling Wedge pattern. So far, it does not have the volumes required to confirm a breakout. But should they appear—owing to stimulus hopes—then the price may attempt a close above its record high near $42,000, followed by a run-up towards the $45,000-50,000 area.
“Bitcoin $30,000-$40,000 cage may refresh bulls toward $50,000,” added Mr. McGlone.