- Assessing the chances of a return of heavy selling based on Bitcoin’s bearish pennant pattern.
- Directional uncertainty still plagues Bitcoin as volumes remain low.
If you own bitcoin [BTC], chances are you’ve been eagerly waiting for the price to break out of the current two-week stalemate. A recent analysis could shed light on which side BTC is likely to choose once volatility picks up again.
Read the Bitcoin (BTC) price prediction for 2023/2024
A May 24 CryptoQuant analysis revealed a good reason why Bitcoin is likely to see a crash from current levels. According to the analysis, the cryptocurrency is currently forming a bearish pennant pattern, which is usually associated with downward movement.
Source: CryptoQuant
The assessment also indicated that the derivatives market was already moving in a way that suggested bearish expectations. The ratio of short to long positions over the last 24 hours showed that 51.75% of traders were short and 48.25% were long.
A look at the bitcoin data that could underpin these bearish expectations
On-chain data also showed a pivot in bitcoin’s estimated leverage ratio over the past 24 hours, after previously showing a significant increase.
On the other hand, funding rates in the derivatives market have increased, suggesting that traders have been bracing for a potential big move.
Source: CryptoQuant
The bearish expectations are also reflected in the bitcoin exchange flows. We have seen an increase in FX inflows since May 21st, with these inflows outweighing FX outflows.
This confirmed the increase in pessimistic expectations. Traders should note that the flow rate has slowed since then, however, Bitcoin exchange inflows still outweigh outflows.
Source: CryptoQuant
These results indicate that more and more traders are embracing bearish expectations which can consequently lead to such an outcome. While the current bearish pennant price pattern suggests a high probability of such an outcome, it doesn’t necessarily have to be the case.
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Bitcoin investors should remain cautious as a large amount of leveraged short positions could tempt whales to buy.
Such an outcome would, contrary to expectations, lead to higher price levels and, as a result, to the liquidation of numerous short positions. This, in turn, would force short sellers to replenish their BTC holdings, contributing to a new wave of buying pressure.
Note that these scenarios are currently still in the realm of speculation. This is because the current buying and selling pressure on Bitcoin is still low.
This means that it may still be too early to give an accurate short-term view of the next major BTC price move. Still, the ranging performance is now overwhelmed and a breakout/breakdown could be due at any time.
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