Bitcoin: is there a bull trap underway?

bitcoin bull trap

Oftentimes when the price of Bitcoin rises quickly during a bearish period many speculate that it is merely a bull trap.

The “bull trap” is a false upward signal during a downtrend, such that it may lead to buying in hopes of further price increases. If, on the other hand, the downtrend continues, and thus the rise is not there, traders and investors who bought are metaphorically “trapped” by their purchase, which generates losses instead of gains.

Bitcoin’s price rise: bull trap imminent?

Beginning on 10 November last year, Bitcoin’s price began to lateralize around $16,000/17,000 after hitting an annual low around $15,500.

This lateralization lasted two months, because it was not until January 12 of this year that the price finally broke through the $17,000 resistance by first moving above $18,000 and then, within just nine days, also above $23,000.

By now, therefore, it has been sideways around $23,000 for almost two weeks, so much so that there are those who are beginning to speculate that it cannot go any higher at this time.

In fact, for example, tonight it rose above $24,000, but fell back almost immediately below this threshold.

The fact is that this rise occurred at a time when the trend still seems bearish. It also happened very quickly (+32% in nine days), which suggests that it may be due to over-enthusiasm.

The bearish trend before Bitcoin’s potential bull trap

The possible excess of enthusiasm is evidenced by the Fear & Greed Index, which rose well above the neutral level yesterday. It had already risen above 60 in late January, but by the next day the price had fallen well below $23,000.

Right now the most debated question seems to be whether the current trend is still bearish or not.

It is worth noting that the current price level is significantly higher than it was at the beginning of November 2022, i.e., before the FTX bankruptcy. This is a similar level to the one touched in August last year, and this might suggest that the trend is no longer bearish.

However, it was precisely in August that the price of Bitcoin, after lateralizing for two weeks around the $23,000 mark, first fell to $21,000 and then even below $20,000.

Should a similar dynamic be replicated at the current juncture as well it would have been for all intents and purposes a bull trap.

The key level

Many analysts argue that the key level to be particularly considered at this time is $25,000, because by now that seems to be the major resistance to be overcome to avoid the bull trap.

Tonight, on the back of yesterday’s surge, Bitcoin’s price rose to nearly $24,300, but within less than two hours it was already back to $23,800.

So it has not even managed to approach the $25,000 resistance, and should it continue to fail to break through it, there is a risk that the current upward momentum will be exhausted generating a trend reversal in the short term.

After all, at the end of January, when the price fell from $23,800 to $22,600, the Fear & Greed Index suddenly dropped from 61 to 51, but without going into negative territory.

All this suggests that markets are still prone to easy fears should Bitcoin’s price fail to maintain its upward trend.

In fact, it has been since 21 January that the uptrend seems to have come to a halt, although just yesterday it tried to revive itself, without much success.

The comments on Twitter

It is no coincidence that there are those who openly claim that this is indeed a major bull trap.

However, not everyone agrees that this is a bull trap.

For example, in the medium term there are those who argue that the price of Bitcoin in the coming months may even return to the highs of 2021.

There are also those who wonder about moving to ETH.

In reality, the point made about Bitcoin also applies to Ethereum, because the trend in recent months is extremely similar. Other cryptocurrencies are following different trends, but they also often turn out to be more volatile and therefore riskier.

What seems to be established though is that November’s $15,500 should be considered the bottom of the bear market of 2022.

Indeed, among those who argue that the current one would in fact be a bull trap, several envision a return of Bitcoin’s price to $20,000 or $19,000, while there are now few who believe it could fall as low as $12,000 or $10,000.

Indeed, although there are still those who argue that the price could even fall below the 2022 bottom, those who argue that the bottom of this cycle is the current one clearly prevail.

2019

It is worth noting that the comparison with the previous cycle, in which 2023 could repeat the 2019 trend, suggests that in the pre-halving year the price is unlikely to fall below the previous year’s low.

While it is true that during the even earlier cycle, which was in 2015, the bottom occurred in January of the pre-halving year, January 2023 was the best ever since that of 2013 for the price of Bitcoin.

Thus it is definitely possible that the 2023 trend is closer to that of 2019 than to that of 2015, and if so the bottom of this cycle would remain the $15,500 of November 2022. Furthermore, even in the previous cycle the last bear market crash occurred just between November and December of the post-bubble year.