The question on every crypto trader’s mind right now: Has Bitcoin finally bottomed out, or is there more pain to come? Monday’s price action provided some intriguing clues that suggest the worst of the selling pressure may be behind us. But with a major inflation report due later this week, volatility could quickly return.
Bitcoin Rebounds Sharply from $89K Dip
Bitcoin took a gut punch early Monday as it sliced through the critical $90,000 to $93,000 support zone that had held firm since November. The breakdown was triggered by investment banks paring back expectations for Fed rate cuts and even entertaining the possibility of rate hikes in light of Friday’s blowout jobs report. Major stock indices gapped down, dragging BTC to an intraday low near $89,000.
But Bitcoin didn’t stay down for long. By the end of the trading session, it had mounted a forceful recovery to settle back above $94,000. This left behind a classic candlestick pattern known as a “long-legged doji.” The pattern’s extended lower wick signifies that although sellers were initially in control, buyers aggressively stepped in and overwhelmed them. When this occurs at a key support level or after a significant decline, it’s often interpreted as a sign of downtrend exhaustion and a potential bottom.
Opposite of December Peak Price Action
Interestingly, Monday’s long-legged doji marked an inverse of the price action witnessed at Bitcoin’s all-time high above $108,000 in mid-December. At that euphoric peak, BTC printed an ominous doji candle with a pronounced upper shadow, indicating that bulls were losing steam:
What we saw on Dec. 16 [was] when the bulls failed to keep prices at record highs above $108,000, printing a doji candle with a longer upper shadow. That was a sign of the uptrend running out of steam, with sellers looking to reassert themselves.
The fact that Bitcoin is now exhibiting the opposite pattern after an extended decline bolsters the case that downside momentum is waning. However, traders will likely wait for confirmation in the form of a decisive move above Monday’s high of $95,900 before growing more confident that a bottom is forming.
Bullish Supply-Demand Dynamics Persist
It’s also worth highlighting that Bitcoin’s underlying supply and demand setup still appears favorable, even after the recent pullback. As Andre Dragosch of Bitwise Asset Management pointed out:
Corporate demand for BTC has already outpaced the supply of new coins this year.
This suggests that big players have continued accumulating Bitcoin on dips. If that trend persists, it could help put a floor under prices going forward.
CPI Report Could Spark More Volatility
The next major event on the radar is Wednesday’s US Consumer Price Index (CPI) report. The inflation data could sway expectations for the Federal Reserve’s interest rate path, which has been a key driver of crypto and stock market sentiment in recent months.
A higher-than-expected inflation reading could deal a blow to hopes for Fed rate cuts later this year, likely weighing on risk assets. On the other hand, an in-line or soft CPI print could reinforce the “peak inflation” narrative and potentially give Bitcoin a boost.
In the wake of the CPI release, traders will be keenly focused on whether Bitcoin can maintain Monday’s recovery. Neal Wen of Kronos Research summarized the situation:
After Monday’s sharp drop, Bitcoin rebounded from a low of $89K, as traders await the U.S. CPI report on Jan. 15. Major altcoins followed suit, with many losing more in the last 24 hours. Market watchers are now focused on signs of stability to see further downside or upside.
The Bottom Line
Bitcoin’s ability to rapidly recover from sub-$90,000 levels is an encouraging sign for bulls. The long-legged doji reversal pattern combined with still-robust corporate demand paints a more optimistic picture. However, the situation remains fluid, with the upcoming CPI data and reaction to it crucial in determining whether BTC can build on Monday’s rebound or faces a retest of recent lows. In this environment, crypto traders should stay nimble and prepare for the possibility of heightened near-term volatility as the market awaits further direction.
