Bitcoin (BTC) has had a very volatile week as the price of Bitcoin rose from $ 32,000 to $ 38,500 and back to $ 33,000 within 24 hours.
The first spike to $ 38,500 happened in minutes after that Elon Musk added #Bitcoin to his Twitter profile.
However, no follow-up to that price move was seen on the charts like Bitcoin decreased significantly in the following hours. Currently, the USD 34,500 area is a major resistance zone to break through if the market is to maintain bullish momentum.
Failure to break $ 38,000 will cause dropdown
The levels that are crucial to keep an eye on are highlighted in the chart above. Simply put, $ 38,000 has to break to continue the rally. Turning this level over for support will open the door to new all-time highs.
However, the increase could not be sustained yesterday. After the failure of the USD 38,000 level, the USD 34,000 level failed to provide much-needed support for further upward momentum.
Therefore, the “Elon Musk Pump” can be considered an outlier, and the general trend continues. This is a downward trend since the peak at USD 42,000 that will most likely continue unless the price of Bitcoin can break through USD 34,500 and turn into support.
Dollar being strong is bad news for Bitcoin
One of the main arguments for more Bitcoin, the downside would be the rebounding US Dollar Currency Index (DXY). This index is at a possible low as a bullish divergence is seen at the significant 90 point level.
After this, the bullish divergence will be confirmed by a higher low, indicating that there is likely more upside potential.
Remarkably, the previous relief rally on the DXY index in September triggered a 20% correction for Bitcoin. However, since that relief, the DXY Index has gone tremendously weak, one of the key variables for Bitcoin’s massive surge to $ 42,000.
February is not the best month for stocks, however. The same can be concluded about Bitcoin as Bitcoin crashed to $ 6,000 in February 2018 after reaching its previous all-time high.
Therefore, a rebounding DXY could also contribute to bearish sentiment for Bitcoin in February.
Bitcoin Dominance Index eyes relief rally
Historical charts show earlier market behavior with many cyclical patterns.
When Bitcoin’s dominance peaked in December, there were massive swings in the altcoin market. After such a massive rally, however, a healthy correction should come as no surprise to test previous resistance levels.
Those tests would mark a resurgence for Bitcoin’s dominance in February, which could open the door for a massive run for the entire crypto market from March.
Critical Levels to Watch Out for Bitcoin
The critical levels to keep an eye on can be easily seen in the chart above. First, Bitcoin’s price must reclaim the USD 34,500 level as a support to sustain the bullish momentum. When that happens, the USD 38,000 level will be retested. Most likely, that test will result in a more than $ 38,000 breakout towards its all-time high.
However, if the price of Bitcoin cannot break through the USD 34,500 mark, further downward momentum is likely, as the chart shows. In that perspective, the critical level to look at is the $ 30,000 region. If that doesn’t support (after numerous tests al), I expect a drop to $ 25,000 and the MA of 21 weeks.
The views and opinions expressed here are solely those of the writer and do not necessarily reflect the view of Cointelegraph. Every investment and every trade move carries risks. You should do your own research when making a decision.