Where is Bitcoin (BTC) headed to next? The current market dynamics
The price action on BTC has been quite interesting throughout the last 6-8 weeks, seeing the "king" of all cryptos stuck in the relatively broad range of the $53,000 support level on the downside and the $68,000 all-time highs resistance on the upside. It seems that many market participants expected for BTC to shoot upwards immediately after breaking above its prior all-time highs of around $64,000, which the digital gold managed to set earlier in the Spring of 2021. Now, what many investors fail to understand is that one of the most important components of price analysis and the evaluation of the short-term, medium term and long term price structures is indeed recognizing the psychological patterns and behaviors that investors tend to follow. These patterns and behaviors are present across all asset classes and markets simply because humans are the ones who are driving the financial markets and humans have a general tendency of overexaggerating both good and bad times, outcomes and developments as a result of popular but unproductive emotions like Fear and Greed.
What many beginners in trading and/or investing seem to forget is that EVERYONE is looking at the same price chart, thus everyone is seeing the exact same levels, which very often leads to the development of group-like mentality and bias among unexperienced traders. You see, "support" and "resistance" lines are nothing else but certain price levels where investors see other investors reacting in a certain way, either buying near a support or selling near a resistance, which then makes the "uncertain" investors more confident to act in the same way as the other investors as he believes that his probability of being right and making money increases the larger the number of people who take that same trade becomes. To put it in simple words that means that each and every time when a certain support/resistance level holds it technically becomes "stronger" as it attracts new traders who become willing to trust this level and accept its validity, thus basing their future trading decisions on that assumption.
Now, why is that important.. well, the answer is quite simple and straightforward as whenever market positioning becomes heavily one-sided as a result of investors greed in bull markets and fear in bear markets, then it becomes just a matter of time for a mean reversion to occur and for market positioning to normalize and balance out again.
Throughout the last few months, we've continued to see articles, videos, interviews, podcasts, charts, correlations, graphs, comparisons etc. supporting the claim on why Bitcoin (BTC) will be unquestionably going to at least $100,000 right after it breaks above its prior all-time highs ($64,000) from earlier in the year. Now, after knowing what you know about market psychology, what do you think did all of that hype and positivity create? Well, you're right.. a heavily one-sided positioning on BTC as everyone has been trying to raise liquidity (cash) in order to put it in the crypto market in order to participate in and benefit from this "guaranteed" market rally. As market professionals we know that there is no such thing as "guaranteed" in the global financial markets especially in a highly volatile market like Crypto. However, the average Joe, doesn't care about any of that as he simply wants to make a lot of money and get rich quick. So, what ends up happening and we've seen that time and time again across the financial markets is people use all of the free capital they have to jump on the FOMO train as they are afraid of missing the "big profits" out. Eventually, they run out of savings and/or other liquidity tools that they own and they start BORROWING more and more money in order to make higher profits. Because, "what's the big deal when you can borrow at an interest rate of 1-2-3% and on the other side you have the opportunity to double or triple your money.. " Traders and investors start borrowing heavily chasing the prices higher through the usage of complex financial tools like "LEVERAGE" and they start trading on Margin. This initially sounds attractive as the more leverage you take the more your profit potential increases, but what many traders who are using leverage do not understand is that when you are heavily overleveraged even a small movement in the price against you could result in the total liquidation of your entire portfolio. We are currently sitting at all-time high levels of credit and leverage in the crypto market, which in turns makes that market much more volatile than it is expected to be at this stage of adoption, simply because of the frequent account liquidation of highly-speculative market participants.
We believe that the heavily overcrowded trade on BTC has been struggling in recent weeks as a result of the constant battle between long-term investors and short-term speculators. Every time the price drops towards a meaningful support, large institutional investors start buying, thus pushing the price higher. On the other hand the more the price starts moving higher, the more speculators start FOMO-ing in using leveraged trading instruments and platforms in their pursuit of wealth. However, the presence of the latter group makes the market unstable as even small price declines could end up triggering larger liquidation events in the market taking the price much lower.
At any rate, despite these short-term market dynamics we are strongly BULLISH on Bitcoin (BTC) as we continue to see record levels of adoption not only for BTC but for a variety of digital and blockchain based assets; strong institutional interest especially after the introduction of the Bitcoin futures backed ETF; continued improvement of the Bitcoin network with the most recent Taproot upgrade, which introduced Smart Contracts on the BTC network as well as further enhanced the privacy and security of the network.
Conclusion
Bitcoin (BTC) is undoubtedly moving higher in the next 2-4 months, however the road to the upside will unfortunately not be the "smooth sailing" that many investors had expected. Thus, these are our two most likely scenarios for the path of BTC to the upside in the coming months. Remember, the later the breakout to the upside occurs the higher the BTC price will go. For example, in Scenario 1 if the price starts moving higher from here, we might see $80,000-85,000 being reached as a range before the next major correction in this bull market. On the other hand, in Scenario 2 the expanding uptrend suggests that we might very well see levels north of $95,000 for BTC.
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@DowExperts
