The crypto market finally seems to be bouncing back. Bitcoin (BTC) has gained 36% in two months, offering relief to the battered bulls. However, according to Crypto Twitter, the recovery has suddenly drawn the shape of a bearish pattern on price charts and could be short-lived. "BTC is consolidating within a rising wedge, which is a bearish pattern," Milan Vojtek, a technical analysis enthusiast, tweeted early Tuesday, echoing the views of his Twitter compatriots.
A rising wedge represents a bounce contained between two converging trendlines connecting higher lows and higher highs. The converging nature of trendlines indicates volatility is contracting as prices rise, a sign of recovery losing steam – and that tension is building, with sellers contesting the move higher. So, an occurrence of a rising wedge often has traders preparing for a fresh price drop. Chart-based traders typically take short positions – bets on declines – when prices dive out of the rising wedge, confirming a breakdown. The pseudonymous analyst Nebraskagooner tweeted, "Really not looking hot here after multiple rejections. A rising wedge breakdown would target a $21,500 area."
The predictive power of technical analysis patterns is tied to their popularity, meaning sometimes these patterns can become a self-fulfilling prophecy; the greater the number of people tracing the rising wedge, as is the case with bitcoin, the stronger the probability of a renewed drop. Bitcoin has yet to dive out of the rising wedge, but if it does there could be renewed selling, as feared by Crypto Twitter. The pattern has also drawn the attention of savvy traders. "Bitcoin has managed to hold up much better than I thought it might, but the outlook appears to be the same," Michael Kramer, founder of Mott Capital Management, wrote in a market update published Sunday. "A rising wedge pattern is forming within the bear flag pattern, strengthening the case for this fall lower and potential test $16,400."
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