Bitcoin is forming a consolidation structure in both the daily and 4HR time frames. Based on the number of active users on the network – the lack of demand among retail investors is still evident. Therefore, any sudden change in market sentiment can lead to unexpected volatility.
Bitcoin got rejected from the multi-month descending trendline after failing to sustain its bullish surge. It has also broken down the 50-Day moving average with significant negative momentum.
The cryptocurrency is now trading above the $35K support zone. From a technical perspective and because of the uncertainty in macro conditions, the market may stay in a ranging/consolidation phase for the mid-term. The $34K-$35K demand zone will be at the bottom of the mentioned range, while the $45K-$46K supply zone will be at the top.
The price has broken the blue trendline, increased to the top of the range, and is retesting the trendline in the form of a pullback in the lower timeframes. There are two possibilities here:
- BTC completes the pullback and moves towards the top of the range. To do so, it must first generate a higher high price action pattern, then consolidate before beginning the rally as seen in the green pattern.
- Both the trendline and the support zone fail to keep the price above them, and bitcoin begins a new bearish rally to reach lower price levels. A massive long liquidation event is inevitable in this scenario, fueling the negative trend.
Bitcoin Active Addresses (EMA 30):
Supply dynamics is the main focus for on-chain analysts. However, it is evident that there is another side to the price discovery equation – demand. Over the last year, particularly after the $64K ATH in March 2021, most long-term holders have held their strong HODL-conviction and even accumulated more.
As a result, the price made a second ATH in November 2021 ($69k) but then crashed by more than 50% since then. Looking at the number of active addresses (30-day EMA), it is evident that there were far fewer active users in the network at $69k, compared to the $64k top.
This bearish divergence demonstrated a massive lack of demand. Rumors about the Fed’s tapering and rate hikes have played their part in preventing many retail investors from coming back into the market. This metric will be a crucial indicator to watch in the future. Moreover, if the bitcoin price is about to find a bottom and begin a new rally, it should coincide with a rise inactive addresses. If it doesn’t, it is likely to be a bull trap.
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