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Breaking News: Dogecoin (DOGE) Soars 8%, But An Uptick In This Metric Suggests A Pullback
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Breaking News: Dogecoin (DOGE) Soars 8%, But An Uptick In This Metric Suggests A Pullback

“Smart Money” Indicator Hints At Bearish Bitcoin Price Reversal

Tony Spilotro by Tony Spilotro
3 years ago
in Cryptocurrency news, Bitcoin
Reading Time: 3 mins read
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Bitcoin price has been in an uptrend since the new year kicked off. In just 31 days into the new year, the cryptocurrency rose over 30% and became one of the best-performing assets of 2020 thus far.

But an indicator often used to tip traders off as to what positions “smart money” is taking, may be signaling a bearish reversal in the coming days.

Bitcoin Price Prepares For Bearish Reversal If Smart Money Indicator Is Accurate

Bitcoin price may have set a local downtrend bottom at $6,400 on December 18, 2019, which sent the first-ever cryptocurrency into a powerful uptrend that’s lasted well into the new year.

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It’s only now, after a massively bullish monthly close just days ago, that Bitcoin’s uptrend may finally be fading.

Related Reading | Legendary Trader: Current Crypto Rally Must Hold Or More Serious Correction Is Coming

After rising over 40% from lows in a little over a month, Bitcoin price over the weekend may have topped out at roughly $9,600.

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A large rejection occurred when Bitcoin price touched the key resistance level, and has been dropping in value ever since.

Despite the small pullback, the crypto market remains at peak bullishness, after many altcoins have risen to local highs, many are expecting Bitcoin price to make a strong run higher.

Especially now that many signals indicate that the bear market may have finally ended.

However, one indicator, considered the “smart money indicator” may be signaling a strong warning sign that a bearish reversal is ahead.

According to the On-Balance Volume indicator, Bitcoin has been making higher highs in price, all while the indicator continues to set lower highs. This price action has caused two, prominent bearish divergences across Bitcoin price charts.

A bearish divergence typically signals a drop is coming and oftentimes can precede a strong bearish reversal.

bitcoin price obv

Understanding the On-Balance Volume Indicator and Why It Matters

On-Balance Volume (OBV) was designed to take advantage of the idea that “volume precedes price,” and the indicator rises or falls depending on negative or positive buy or sell volume.

The theory is that “smart money” often takes positions before the rest of the market, which can be seen ahead of time by decreases or increases in OBV.

The divergence in price and OBV could suggest that smart money is currently distributing heavily into the retail buying frenzy caused by a strong break of a downtrend line and strong January monthly close.

Those who bought Bitcoin as lows last year are likely sitting in as much as 40% profit on their recent investments, prompting them to take profit at the important resistance level.

The bearish divergence line drawn on the chart above also appears to be acting as a top trend line to a massive, multi-month ascending wedge – a pattern that usually breaks to the downside.

Related Reading | 10 Factors Confirm a New Crypto Bull Market Has Officially Begun 

On the longest timeframes, Bitcoin appears ready to officially embark off into a new bull market, but until shorter timeframes catch up to that bullishness, Bitcoin price could see some additional downside in the next few weeks.

However, if Bitcoin price were to make a strong move higher here, it would invalidate the two bearish divergences and instead, the OBV indicator would be confirming a new uptrend has begun, due to a series of higher highs and higher lows being set.

Tags: bitcoincryptoon balance volumeSmart Money
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a global remote work leader with a decade of award-winning content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter at @tonyspilotroBTC and feel free to drop me a line if you would like to work together.

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