The price of Bitcoin (BTC) soared to $24,200 on July 28 after rising nearly 10.5% starting the day before.
The gains came after Federal Reserve Chairman Jerome Powell indicated its intention to slow the prevailing tightening. They have prompted a number of Bitcoin analysts to predict the near-term upward continuation, with CryptoHamster seeing BTC next at $26,000.
But BTC’s potential to fully recover from its ongoing bearish slumber seems low for at least three main reasons.
Bitcoin bulls have been duped before
Bitcoin set its record high of $69,000 in November 2022. Since then, the cryptocurrency has fallen by more than 60% as it underwent several mini-pumps on its way down.
On the daily chart, Bitcoin has recovered at least five times since November 2021, making 23% to 40% gains on each recovery. Nevertheless, it has continued its correction every time after it formed a local price high around its exponential moving averages (EMA) and then fell to new annual lows.BTC/USD daily price chart with ‘fakeouts’. Source: TradingView
This time is looking no different, with Bitcoin receiving a bullish rejection in June and recovering nearly 17% a month later. Notably, BTC price is facing intermediate resistance in its 50-day EMA (the red wave) around $23,150, with a breakout making its way to $27,000, coinciding with the 100-day EMA (black).
At $27,000, the price would still be a lower high compared to the previous local highs. So that technically raises the possibility of another bearish continuation move.
High sales, low buying volume
Interestingly, the volume behavior during the ongoing Bitcoin correction shows a greater interest in selling the coin to local highs.
The daily chart below illustrates this by highlighting volume measurements during downward and upward trends since November 2021. For example, the last two major price drops in May and June coincided with a strong increase in sales volume
By comparison, the subsequent rebounds from those price drops were accompanied by modest to lower trading volumes. The sustained volume behavior looks the same, peaking during the downtrend and falling as price recovers.
This suggests weakening upward momentum, which could lead to another price correction.
BTC Equity Correlation Returns to Positive
Bitcoin is once again following stock market trends, despite a brief decoupling in early July.
For example, on July 28, the daily correlation coefficient between Bitcoin and the tech-heavy Nasdaq Composite was near 0.66. That includes declines in both markets after US GDP fell for the second consecutive quarter.
That officially confirms that the US has entered a ‘technical recession’, which could have a negative effect on the stock market. Therefore, Bitcoin’s downside outlook appears high if the positive correlation with the stock market continues.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move carries risks, you should do your own research when making a decision.