Bitcoin has increased more than 50% since November 2024, but recent technical analysis indicates a potential correction. The price chart of Bitcoin, the largest cryptocurrency by market capitalization, is currently showing a pattern similar to a Head and Shoulders (H&S) pattern. This pattern typically signals a significant trend reversal from bullish to bearish.
How the Head and Shoulders pattern is formed
In November, Bitcoin attempted to break above the $100,000 level but failed, creating the first 'shoulder.' In December, the price surged to $108,000 before plummeting to $92,000, forming the 'head.' Recently, Bitcoin's drop to $97,000 has shaped the 'second shoulder.'
Analysts emphasize that Bitcoin is currently trading near a support level known as the 'neckline.' This horizontal trendline connects the lows of both shoulders, currently at around $91,500. If the price drops below this level, it could confirm the H&S pattern.
What happens if the pattern is confirmed?
If Bitcoin breaks below the neckline, the 'measured move' technique predicts a potential drop to $75,000. This method calculates the distance between the head and the neckline and projects this distance downward from the neckline.
Investors should be cautious.
Although technical analysis is a widely used tool to forecast price volatility, it is important to note that patterns like H&S can sometimes be misleading. Bitcoin's high volatility often leads to significant price fluctuations that can invalidate such patterns.
The price of cryptocurrencies remains influenced by macroeconomic factors and overall market sentiment. Investors are advised to combine technical analysis with fundamental data to make informed decisions. Recent price action suggests that Bitcoin is oscillating at critical support levels, making the market very sensitive to any significant changes.
