Bitcoin Considers History in Trading Ranges6

Bitcoin remains trapped between the two familiar lines at $19,000 and $20,000. The largest cryptocurrency's latest stumble follows a brief but vicious 11.6% sell-off at the weekend that has unnerved some in the market. However, it would take a great deal more than the current price action to classify this as a bear market. Bitcoin would need to fall 80% to revisit its June lows and technically enter a bear market.

For the untrained eye, the current price action might look worrying. The cryptocurrency has bumped along the bottom of a trading range established in June and has yet to break above $20,000 since July 20. However, seasoned market participants will be less distressed. Trading ranges are an established element of all financial markets and are typically found at significant highs or lows. The current range in Bitcoin began after a period of exceptional volatility, which saw the price fall 70% from its all-time highs in November last year.

A trading range is a neutral phase in a bull or bear market. That might sound counterintuitive, but it is not uncommon for an asset to consolidate its gains after a major bull run or losses before resuming its trend. A trading range allows for a build-up of energy ahead of the market's next major leg. The current trading range has lasted for three months, roughly the same as the one between December 2020 and April 2021. That phase ended with a breakout to the upside and an impressive 225% rally to $69,000 over the following five months.

It would be unwise to assume that this trading range will also result in a breakout to the upside. Another possibility is that Bitcoin falls through the bottom of the range, $19,000. A break below that level could trigger a capitulation event that could send Bitcoin tumbling below $17,000. The cryptocurrency is not overbought, the Fear and Greed Index remains firmly in a state of fear and there is little speculative leverage, which suggests that a capitulation event is unlikely.

In the meantime, traders should be patient and wait for the trading range to resolve before making their next move. Historically, Bitcoin has traded for an average of 305 days within a range before breaking out to the upside or downside. That suggests there is still some time to wait.

2025-01-20

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