Massive Volume Hints Bitcoin May Be Bottoming Out
Deron Wagner | Nov 15, 2022 06:30AM ET
Despite recent weakness, Bitcoin has just flashed a powerful technical signal that indicates a bottom may be coming soon. Here’s what the charts tell us…
The 2022 crypto bear market has been quite challenging for investors in the crypto space. But bear markets eventually lead to fantastic buying opportunities—as long as you’re not too early. So after Bitcoin’s recent fall to a new, 2-year low, many crypto traders are now asking, “Has it hit bottom?”
Volume, a highly reliable technical indicator, is indeed hinting that Bitcoin may now be bottoming out.
After months of stagnant, sideways price action, Bitcoin sliced through support of its June 2022 low to a fresh, 2-year low last week. That prior support level at 17,600 has now become new resistance, while the prior downtrend line is still acting as support. Last week’s breakdown to a new low was obviously bearish, but a significantly positive signal was also generated.
Check out the huge volume spike on the annotated weekly chart of Bitcoin below:
Despite the fall to a new low, notice how new support of the prior downtrend line (purple line) kept the decline in check. The downtrend line has become support because a prior level of resistance becomes the new support—after the resistance is broken (and vice versa). This is a basic tenet of technical analysis.
Next, let’s zoom in to the shorter-term daily chart pattern:
When BTC broke down to a new low on November 8, it found support and bounced off the 15,550 level.
When the price bounced sharply the next day, the rally stalled right at new resistance of the 17,600 level (yellow horizontal line). This is a great example of how prior support can become new resistance (as explained above).
In the near-term, $BTC is now wedged between support at 15,550 and resistance at 17,600. Given the plethora of overhead supply at higher prices , current resistance holds more weight than the single day of support.
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As such, odds now favor sideways to slightly lower prices until $BTC gets back above the 17,600 level. However, a period of sideways chop seems more likely than substantially lower prices.
Clearly, the BTC weekly and daily charts do not look good now. But has Bitcoin formed a price bottom? Last week’s historical volume levels indicate that a major Bitcoin bottom may indeed be coming soon.
As mentioned, Bitcoin just printed its highest historical day and week of volume. Although often overlooked by newer traders, volume is arguably the most important and reliable technical indicator in existence (other than price). Volume is the gasoline that drives market momentum in both directions, and is an indicator that never lies. Whereas certain technical indicators can sometimes be deceiving, volume shows us what’s really happening “under the hood.”
Paying attention to volume patterns in the crypto market is a highly reliable and insightful way to predict future price trends. So, what does Bitcoin’s highest historical volume tell us? Check out the chart below:
Bitcoin’s top 7 highest volume days:*
- November 8, 2022
- March 13, 2020
- March 12, 2020
- November 9, 2022
- June 13, 2022
- May 19, 2021
- June 15, 2022
* BTC/USD pair from TradingView (spot and derivatives combined)
Excluding the present, the highest volume periods were March 2020, May 2021, and June 2022.
What do those three periods have in common?
All 3 high volume days preceded a major Bitcoin bottom.
March 2020 – Bitcoin rallied +163% (3,800 to 10,000) over the next 2 months (March 13 low to May 7 high).
May 2021 – Bitcoin bottomed out, chopped sideways for 2 months, then zoomed +80% higher (29,300 to 52,600) over the next 6 weeks.
June 2022 – Bitcoin formed an intermediate-term bottom to prior months of selling. $BTC rallied for two months and gained +44% (17,550 to 25,20)
November 2022 – ??
Based on the data , it seems that major volume surges have been a sign of stealth institutional accumulation–which tend to mark significant bottoms. Remember that volume speaks volumes!
h2 Will the bullish volume trend lead to another Bitcoin bottom?/h2If the previous trend of the highest volume days continues, then BTC could be setting up for an intermediate-term advance. However, with Bitcoin at a new 2-year low and the FTX meltdown scaring investors, there needs to be some sort of impetus for the bulls to re-gain control. But even if the bulls stay away for now, the major selling may be drying up due to less forced liquidity issues.
Many over-leveraged players have now been forced out of the market. This is a positive step for building a solid foundation for the eventual rally that will come. It also seems we may be reaching the point of maximum pain in the crypto market, which often marks a significant Bitcoin bottom.
But without a short-term impetus to buy, BTC may now see an extended period of sideways chop, rather than a V-shaped recovery. Of course, this is just one possible scenario. Anything is possible in the markets–especially crypto.
We at least want BTC to prove it can stop setting lower lows and show some improving price/volume action. This will help improve our risk/reward ratios for entry.
Patience is the name of the game here, but we will be ready to jump back in after Bitcoin has bottomed out.
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