In a recent analysis of Bitcoin price, veteran crypto analyst Rekt Capital discussed the impending presence of a potential double top formation on the weekly chart. The scenario paints a picture of impending volatility, with both bullish and bearish narratives emerging from this often ominous pattern.
“The BTC Double Top is still intact,” Rekt Capital tweeted, highlighting the importance of the technical structure. He continues: “Weekly bearish divergence also gives an additional bearish confluence to this structure. More so, the bear div is developing a new lower high (dotted green) from its primary downtrend (solid green). However, BTC would need to fall another -9% to -13% from current prices to complete its potential double top.
But what makes this analysis particularly intriguing is the current state of Bitcoin’s volume. Rekt Capital further notes, “What’s interesting about the volume behind BTC’s price action is that the two recent peaks formed on rising volume, while the RSI formed lower highs.” For many, this simultaneous increase in volume with declining RSI indicates underlying market weakness, an insight further supported by subsequent falling volume after the local high of around $31,000.
Rekt Capital dug deeper into his video analysis and emphasized the need for a clear “M” shaped formation, a hallmark of the double top pattern. “For Bitcoin to form a double top here, we need to see an ‘M’ shaped formation take place. When we see an M shape, it’s essentially a double top. A top here [at $30,800] and a top here [at $31,300].”
Losing central support levels can trigger significant downward movement. “Losing this [neckline] level at $26,000 as support would allow further downtrend,” the analyst warns. However, for traders and investors hoping for symmetrical behavior, Rekt Capital speculates “And if we see symmetry here, a second part of three could months of this M can form so that will lead to further decline and slow bleeding in those 90 days that would be around next month.
But not everything is bleak. Should Bitcoin go back to $24,000, a retracement would “let us retest the neckline of this inverted head and shoulders that we saw break out.” Rekt Capital adds, “So a retest of this level as a new support should actually allow for further upside.”
Also, a look at the 1-week chart shows that there is another scenario for the double top invalidation. Bitcoin has formed an ascending trendline from its low in early January. Provided BTC can hold this trendline weekly and rise from there (around $28,200), an invalidation would occur. The symmetry of the M would be broken, the uptrend in the higher time frames could continue.
Featured image from iStock, chart from TradingView.com