This past weekend was one of the largest sell-offs for crypto in years, wiping out over $1 billion in open interest across crypto futures exchanges- but could it have been avoided? The unfortunate truth is that August has been known to be a historically "red" month for Bitcoin, with a median monthly close of -8%. But there are several possible reversal signals flashing for Bitcoin.
While there have been some outlier months of performance in the past, such as August 2017 when Bitcoin closed up 65%, the dominant color for August has been red for much of Bitcoin’s price-based history. Due to the price crash over this past weekend, Bitcoin closed a CME gap at $58,790, which had been a bearish target for the last three weeks. Since the severe drop occurred while the CME was closed, a new CME gap has now opened at $62,470. Given that Bitcoin is oversold on nearly all technical indicators and the sell-off was both quick and severe, an upper target of $62,470 for a relief bounce is quite possible.
LINK TO CHART: https://www.tradingview.com/x/4Uu4FXhq/
On Monday’s daily candle, Bitcoin fell to a low of $49,577 on Bitstamp’s BTC/USD chart, piercing the 0.786 Fibonacci level at $50,112. Despite the price of $BTC producing a lower wick that pierced this previously untested support level, the chart is clear that we saw an extreme price reaction due to the market-wide sell-off and mass liquidation event. It should be noted that Bitcoin respected historical price action just below the 0.786 Fibonacci level from February 2024, highlighted in the yellow box.
LINK TO CHART: https://www.tradingview.com/x/PziBvvgA/
Given the severity of this sudden drop, it would not be surprising if Bitcoin revisits the $50,000 level to sweep the new lows before bouncing back toward the open CME gap at $62,470. The psychological significance of the $50,000 level cannot be understated, as it represents a major support area that traders closely watch. Historically, Bitcoin has shown resilience in bouncing back from such levels, which I am expecting, but it should be noted that it should take several days for Bitcoin to head back up to the open CME Gap.
But with all of this said, it’s important to reference the chart above pointing out the reality that August has historically been a “red” month, and that September is no different. With this in mind, both traders and investors should consider taking advantage of these bearish conditions to start building new positions for the next phase of the coming bull run.
