Bitcoin price analysis for December 28-January 3: topping out between $28,000 and $30,000?

Bitcoin is showing the first signs of profit booking above $28,000, which could be the start of a deeper correction.

Bitcoin’s rally has pushed its market capitalisation above $500 billion – and if this cryptocurrency was a company, it would be the 11th-largest in the world. 

This is likely to further attract the attention of institutional investors, who have been snapping up the digital asset in large quantities.

Ki Young Ju, the CEO of the on-chain analytics firm CryptoQuant, recently flagged up large Bitcoin outflows from Coinbase – describing this as a sign that more big purchases are being made.

If institutional interest continues, Bitcoin’s price could continue to surge – potentially exceeding the highs of $28,288 that were seen before a massive correction.

But demand is likely to dry up at some point, and short sellers will smell an opportunity to make a quick buck. This could start a correction that attracts selling from momentum traders. 

Most institutional investors have only invested a small portion of their portfolio into Bitcoin. Therefore, even if the price corrects, they may HODL their positions for a long time.

But a retail investor who has a majority of their position in Bitcoin could find it difficult to see gains shrink by 30 or 40 per cent. Hence, these traders should make an informed decision before buying and avoid chasing prices higher.

Let’s begin with Bitcoin price trend analysis of the weekly chart to ascertain whether the rally could continue – or whether we are beginning to see signs of a correction.

Bitcoin price technical analysis: Weekly chart

Bitcoin extended its uptrend last week and surged 11.84 per cent to end at $26,529.05. 

The largest cryptocurrency has rallied vertically after breaking above $20,000, and this has pushed the Relative Strength Index (RSI) above 90. In 2017, the RSI was just above 94 when the BTC/USD pair topped out.

Therefore, the possibility of a correction or a minor consolidation in the next few days is high. The long wick on last week’s candlestick shows first signs of profit booking at higher levels.

The zone between $28,407 and psychological resistance at $30,000 will prove crucial. However, a correction after the recent rally will be healthy, as an incessant rally without any breaks is usually followed by a waterfall decline.

If the pair starts a correction, it is likely to find strong support at the 38.2 per cent Fibonacci retracement level at $21,310, and then at the 50 per cent retracement level at $19,121. 

A bounce off either support will suggest that traders are buying on dips and this could keep the uptrend intact. The bulls will then try to resume the up-move by pushing the price above the all-time high.

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Contrary to this assumption, if the pair continues higher without a correction, it could form a medium-term top that may be followed by a sharp correction and a bear market.

Indulging in FOMO and chasing prices higher is a dangerous tactic, as the risk-to-reward ratio is skewed to the downside.

With Bitcoin price weekly analysis suggesting that some traders are beginning to take profit, let’s see if BTC price analysis of the daily chart shows that a short-term topping pattern has been formed.

Bitcoin price technical analysis: Daily chart

Bitcoin formed a gravestone Doji candlestick pattern on December 27, which usually is a topping sign. However, the bulls are currently attempting to resume the uptrend. 

If they can push the price above $28,407.15, it will invalidate the bearish candlestick pattern and may result in a rally to $30,000.

Contrary to this assumption, if the price again gets rejected above $28,000, it will increase the likelihood of a correction commencing.

The first support on the downside is the 20-day EMA. If the price rebounds off this support, the bulls will attempt to resume the uptrend.

Conversely, if the bears sink the price below the 20-day EMA, the correction could deepen to the 50-day SMA. A break below this level will suggest a possible change in trend.

How to trade Bitcoin this week

Bitcoin remains in an uptrend but is overbought in the short term, increasing the risk of a correction. Therefore, traders may wish to remain on the sidelines and wait for a low-risk buying opportunity to emerge in the next few days before initiating long positions again.

 

Bitcoin to US Dollar
Daily change
16911.3
Low: 16906.2
High: 17092.5

FURTHER READING: Bitcoin explained simply: everything you need to know

FURTHER READING: Bitcoin vs Bitcoin Cash vs Bitcoin SV: the ultimate guide

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