Bitcoin is often described as a highly volatile asset, with price swings regularly exceeding 10% in any given week.
However, over the past three weeks, Bitcoin has entered a period of relative calm, with price grinding between levels of support and resistance at $7,200 and $7,600.
A period of low volatility typically precedes a dramatic move in either direction, with technical factors currently pointing towards a move to the downside.
The exponential moving average (EMA) death cross, which saw the 50 EMA cross the 200 EMA to the downside on November 23, looks set to be the main driver behind the impending slump in price, with the two previous crosses causing 60% corrections.
Another factor to add into the mix is that the 100 EMA is now also on the brink of crossing the 200 EMA to the downside. This means that momentum over the past 100 days is down and that Bitcoin is almost certainly in the midst of a bear market.
In order to nullify a potential drop in price, Bitcoin needs to rally above $8,440 and $8,630, as this will see the shorter time frame moving averages begin to tick back to the upside.
When the seemingly inevitable drop in price comes to fruition, Bitcoin can be expected to test the $6,750 level of support before slumping towards the historical level of $5,900, which held for the majority of the 2018 bear market.
Failing that, price targets of $4,200, $3,150, and $1,850 will start to come into play, although this could be avoided if Bitcoin makes its first higher low since June.
Following the $14,000 top in June, Bitcoin has made four clear lower highs, almost mirroring how it acted in 2018.
This demonstrates that interest in Bitcoin is waning and that bullish traders are struggling to give it enough fuel for a major breakout to the upside.
With Bitcoin now 50% down from its yearly high and 62% down from its all-time high, it needs a fundamental news event to drive hype-fuelled retail investors back into the market following a difficult 24 months.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.