Bitcoin is up 24% in 2 days, but it’s showing two key signs of a local top

The Bitcoin price has recovered by 24 percent in the last 32 hours from around $4,394 to $5,500. It has since stabilized at $5,300, but it is now showing two signs of a local top.

What are the two signs Bitcoin is showing?

While the Bitcoin price has shown a promising upsurge since March 16 despite the 13 percent drop of the Dow Jones Industrial Average (DJIA), its momentum has slowed down since.

The first technical sign which shows that the Bitcoin price could face a short-term pullback is the rise in price met with declining volume.

Historically, when the Bitcoin price saw a short-term upsurge without an increase in volume, it often became vulnerable to a near-term correction.

For instance, when the Bitcoin price was hovering at $9,000, its price slowly increased to around $9,220 with declining volume. In the days that followed, the Bitcoin price dropped to as low as $7,700.

The second technical sign that indicates weak momentum in the current price trend of Bitcoin has shown a third rejection of the same resistance level at $5,500 at lower time frames in the past three days.

Although the Bitcoin price briefly surged to $5,900 on March 16, it immediately fell back into the $5,100 to $5,500 range, which then led BTC to fall to the mid-$4,500 region.

For the Bitcoin price to confirm another move down to the $4,000s, it would need to show a clear rejection of the $5,100 to $5,500 range in the near-term.

U.S. Treasury Secretary Steven Mnuchin’s proposal of a $1 trillion stimulus package and the Fed’s aggressive approach in injecting liquidity in the stock market could be a variable that alleviates selling pressure on both Bitcoin and the cryptocurrency market in general.

The case for a new BTC bottom

Several renowned cryptocurrency traders have suggested in recent weeks that the Bitcoin price may not record a bottom until the coronavirus pandemic subsides and the number of cases begins to drop.

The severity of the coronavirus outbreak has been the main factor of the panic-led sell-off in the global financial market, which ultimately led to a frantic sell-off of crypto assets.

One trader said that the momentum of Bitcoin is currently weak, and the coronavirus outbreak would need to pass its peak for the dominant cryptocurrency to find a bottom.

The trader said:

“Bitcoin is weak and coronavirus fear hasn’t finished. Only when the virus fear finishes or reaches maximum climax is when I believe bitcoin has found a bottom. Until then I expect 3k or lower in the coming weeks. Sooner rather than later.”

Analysts including Ed Keon, chief investment strategist at QMA, have said that the stock market bottom will purely depend on factors that are out of the market’s control. Keon emphasized that it would be foolish to conclusively state that the market reached a bottom until confirmation can be drawn. Keon said:

“It’s hard to put a number on. Only a fool would try to say this is the bottom, but does that mean it’s another 5% or lower? It’s hard to say. It’s going to depend on factors we don’t know yet. Our base case right now is a shallow recession in the U.S.”

There is an argument to be made that Bitcoin will not bottom unless equities bottom out in the future, based on the correlation between the two asset classes in recent weeks.