BTC price analysis

Bitcoin has surged past $40,000 and the cryptocurrency market is rapidly recovering.

The price of Bitcoin (BTC) has surpassed $40,000 on May 26, breaking above a key sell area for the first time in five days.

Traders expect a broader rally to come and a bullish market structure to form if Bitcoin continues to rise above $42,000 and Ether (ETH) reclaims $3,000. 

$42,000 and $49,000 are key resistance levels

Bitcoin has been recovering over the past week due to three major factors.

First, Tesla CEO Elon Musk and MicroStrategy CEO Michael Saylor have been encouraging Bitcoin miners to use cleaner energy.

Musk and Saylor have gone further since, speaking with Bitcoin miners in the United States about reliable energy consumption.

Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.

— Elon Musk (@elonmusk) May 24, 2021

Second, the Bitcoin futures market reset to a large extent. According to the data from Bybt.com, when BTC crashed to below $30,000, the futures market open interest dropped from $27 billion to $11 billion.

This means that the futures market is not overcrowded, which raises the probability of a more sustainable and gradual rally.

Third, Ethereum has been rising rapidly over the past few days, which also benefits Bitcoin and altcoins because ETH saw a deeper correction than BTC.

Major cryptocurrencies rebounding as a whole is improving the sentiment around Bitcoin, leading to the gradual recovery of the crypto market.

In the near term, traders say that $42,000 is the important short-term resistance area and after that, $49,000 is the macro sell area.

A pseudonymous trader known as "Pentoshi" wrote:

"Many alts coming into some resistances +/- a 5% We've gotten mean reversion as discussed during the nuke However $BTC has been stuck. It started it's LH trend a month ago. Would like to see Bitcoin pop + 42k or alts likely make their own LH's and dip again. Clock is ticking."

What's important to observe?

In the foreseeable future, the two key things to observe for Bitcoin traders are exchange outflows and the $42,000 level.

Ideally, if the $42,000 level holds and Bitcoin exchange outflows increase in tandem, that would mean that the confidence of investors in BTC and whales at above $42,000 is rising.

There are concerns that a "dead cat bounce" might form, which is a short-lasting recovery, but if BTC holds $42,000, the chance of a fakeout rally would substantially decrease.

Current price activity could end up in bulls' favor, says John Bollinger, with traders keenly awaiting an uptick which could liquidate shorters.

Bitcoin (BTC) could shoot higher if it completes a W-shaped bottom, says veteran analyst John Bollinger.

In a tweet on May 24, the Bollinger Bands creator told traders to "stay tuned" for a possible lucrative continuation signal on BTC/USD.

W-shaped bottom at "logical place"

Last week, Bollinger had called Bitcoin's rebound from $30,000 to $42,000 "logical" given the significance of the latter price level. 

Now, he said, that upper bound could be forming the middle peak of a W-shaped price formation — a double-pronged bottom followed by an exit to the upside. 

In this situation, $30,000 was the first bottom and Sunday's $31,000 dip the second.

"$BTCUSD is wokring on a short-term W bottom at a logical place," he reiterated.

"The developing risk/reward looks good. Stay tuned for a trade opportunity... (no, not to me, to the markets)."

Bitcoin had gained around 6% on the day at the time of writing, hitting more than $38,000 before continuing to range on short timeframes.

In further commentary, popular trader Crypto Ed likewise included the "W" scenario as a potential outcome. The others were less bullish, namely a $37,000 focus or a fresh dip to $34,000

#BTC update
low TF
I'm seeing a 5 legs structure building here, which would imply more up after;
* a bit more up (37k?)
* an ABC correction (34k?)
* continuation up (41-42k) pic.twitter.com/uKptSiuNVz

— Crypto_Ed_NL (@Crypto_Ed_NL) May 24, 2021

Short squeeze demands build

On social media, meanwhile, other traders were hoping for a short squeeze to develop on Bitcoin after repeatedly punishments for long traders.

In a show of solidarity over the worst of the price dip being over, sources highighted negative funding rates across exchanges and a three-month low in open interest as suitable conditions for a bullish comeback.

Shorters would suffer from a breakout above the $42,000 mark in particular.

Scott Melker additionally cited relative strength index (RSI) flashing "oversold" as cause for optimism. As Cointelegraph reported, RSI is a key indicator for market rotations.

"Potentially have the oversold daily divergence with RSI that I have been waiting for," he told Twitter followers.

The price of Bitcoin dropped below $34,000 as traders look to the next levels of support.

The price of Bitcoin (BTC) fell below $34,000 on major exchanges including Binance as the cryptocurrency market's corrective phase continues.

Large inflows of Ether (ETH) into exchanges were spotted before the latest downturn, suggesting that ETH whales might have led the most recent sell-off in the market.

Where are the key Bitcoin levels?

In the near term, the major macro level for Bitcoin and Ether remain at $30,000 and $2,000, respectively.

According to traders like TraderKoz, if Bitcoin can remain above $37,000 throughout the weekend and recover to around $37,500, the chances of overtaking $42,000 become high.

The $42,000 level is currently the major resistance area, and rallying above that would increase the chances of a newfound rally.

However, if Bitcoin remains below $37,000, the likelihood of a range between $30,000 and $35,000 would increase sharply in the short term.

Referring $37,000 as the "midrange" for Bitcoin, TraderKoz wrote:

"We had a nice daily open dump leading to a sweep and reclaim of yesterday's d/o If we can flip the midrange, I like our chances of pushing to 42k."

Eugene Ng, the head of business development in Asia at Gemini said that systematic algorithms turned short and during the weekend, Bitcoin and Ethereum are likely to see bigger drops to previous lows.

He said:

"Systematic algos have turned short in an illiquid weekend. Expect a retest of lows in $BTC and $ETH in the next 24 hours. Remember to set some buy limits when that happens. AlphaLeak."

The market has been weaker than many traders expected, as technical analysts anticipated consolidation until the U.S. and London markets opened on Monday.

It is crucial for Bitcoin to retain the $33,000 support level to avoid another test of the $30,000 support area in the near term

On May 21, analysts at Whalemap identified $39,931 as a large whale cluster after spotting inflows of around 115,000 BTC.

Hence, to recap, $33,000 and $35,000 remains crucial support levels in the near future, while $39,931 and $42,000 are the major resistance levels.

But, one silver lining in the market is that Bitcoin miners are currently not selling, according to trader Lex Moskovoski.

He wrote:

"Bitcoin miners aren't selling now. We had a small spike in selling pressure from them 3 days ago but it's back to normal now. Data from both Glassnode and Cryptoquant. Whatever selling pressure we're having now is completely on us."

BTC price action effectively knocks down and rebuilds the market, while holding onto its $10,000 gains.

Bitcoin (BTC) saw a dip like no other on May 19, falling to $30,000 in a frantic three-hour shakeout which upended the market.

As the dust settles, however, it's no longer about the dip, but rather the recovery — what makes current BTC price action special?

A bounce like no other

It took around one hour for BTC/USD to go from $39,000 to $30,000 on Wednesday. This is a formidable drop, but nothing unheard of when it comes to historical price action.

In dollar terms rather than percentage, however, that hour was unlike anything seen before. Even during the Covid-19 crash in March 2020, Bitcoin's 60% correction was smaller when measured in USD.

$BTC: Officially a +50% correction.

First one in more than a year.

— David Puell (@kenoshaking) May 19, 2021

If that weren't enough, what happened next was even more unusual. 

After bouncing at exactly $30,000, Bitcoin shot up to $37,000 almost immediately, going on to crack $40,000 shortly after. This was the biggest rebound ever seen, squarely beating March 2020 in both percentage and raw USD terms. 

As skeptical sources called a "dead cat bounce," Bitcoin held fast, still circling at around $39,000 over 12 hours after the bounce at the time of writing.

Leveraged players learn the hard way... again

Bitcoin's market composition changed over the past 24 hours, and is now likely made up of a different class of trader.

This is due to the veracity of both the dip and the recovery — in total, daily liquidations among traders totaled over $8 billion.

This was also far from a rare occurrence, as price volatility regularly claims the wealth of large numbers of leveraged traders in particular. Due to the size of the dip in USD, however, anyone with a long bet likely got frozen out of the market with nothing.

The way back up likewise took care of those banking on a further retracement toward the old all-time highs of $20,000. Support levels, order book data showed at the time, were broadly absent below $30,000, meaning that such a scenario was a real possibility.

Extreme fear challenges Bitcoin's darkest days

Just how nervous traders have become as a result of recent events is showed by the Crypto Fear & Greed Index.

The classic sentiment indicator dropped to just 11/100, firmly within its "extreme greed" zone and its lowest reading since April 2020. 

Fear & Greed was at 73, or "greed," as recently as May 9, making its own drop something of a unique event in its existence. 

The implication, therefore, is that sentiment around cryptocurrency is currently unduly skewed to the downside, with a correction of oversold token prices expected.

"Bitcoin at 40k and appetite for risk is still rock bottom," popular Twitter account Bitcoin Archive commented on the Index.

“'Buy when others are fearful.'”

$39,000 may seem unfairly cheap for Bitcoin, but there is likely more keeping it there than just Elon Musk.

Bitcoin (BTC) has hit its lowest price since Feb. 8 and is struggling to maintain $40,000 — but is Elon Musk wholly to blame?

Cointelegraph takes a look at other factors working against Bitcoin bulls this week as the market returns to levels that some thought would never appear again.

USD bounces off multi-month lows

Tesla CEO Elon Musk bashing Bitcoin's energy consumption is the narrative of the moment everywhere, but some classic hurdles to fresh price gains are also back this week.

Among them is the strength of the U.S. dollar, which is attempting to stage something of a comeback after a losing streak that began in late March.

At the time of writing, the U.S. dollar currency index (DXY), which measures USD against a basket of trading partner currencies, had bounced off long-term support to reverse its downtrend.

DXY is traditionally inversely correlated with Bitcoin, and together with limp stocks, the conditions are right for tripping up bulls' progress.

Nonetheless, Wednesday's DXY close was its lowest since Jan. 6.

Tech stocks see trouble

Elsewhere in the macro picture, tech stocks are suffering — and that's also something which tends not to bode well for Bitcoin.

Following a curious report by Reuters about China allegedly banning further aspects of cryptocurrency commerce, stocks began to come under pressure.

As Cointelegraph and many others noted, however, nothing new has come from Beijing, and trade associations have sought only to reiterate existing restrictions.

Among the equity losers, however, was MicroStrategy, the corporate Bitcoin whale, which lost 5.2% on the day. 

The rout also afflicted Tesla in a somewhat ironic postlude to Musk's Bitcoin criticism. In addition to being relegated to the world's third-richest man, Musk has presided over Tesla's BTC gains almost entirely disappearing.

Classic "FUD"

There may be light at the end of the tunnel — a curious tradition shows that after a China scare, crypto markets tend to produce huge rallies.

When the country officially halted crypto trading in September 2017, Bitcoin and altcoins promptly shot to then all-time highs.

Copycat moves by other jurisdictions are likewise known for their lack of bite. These include Donald Trump's criticism from 2019 and India's ban from earlier this year, something which is already being reconsidered.

"Figure out a way to participate in buying the dip. However you can," author Jason Williams told Twitter followers.

"I’ve seen this play out before with Bitcoin so many times. Price down, news media piles on. FUD. Price down further. Then (lift off)."

Exchange inflows, which in the past 24 hours reached their highest since the March 2020 crash, captured the fear among traders.

"People are scared," analyst Lex Moskovski commented on the data.