Bitcoin has been consolidating below US$35,000 after reaching a 17-month high
Bitcoin (BTC) has been on a remarkable rally since October, reaching new highs above US$40,000 and attracting renewed interest from investors and regulators alike. However, after touching US$45,000 briefly on Dec. 6, the leading cryptocurrency has entered a consolidation phase, trading in a narrow range between US$40,000 and US$43,000.
The $35,000 Resistance
One of the key levels to watch for BTC is the US$35,000 area, which has acted as a strong resistance since early 2022. This level coincides with the 61.8% Fibonacci retracement of the 2021-2022 bear market, as well as the upper boundary of a long-term descending channel. BTC has tested this level several times in the past year, but failed to sustain a decisive break above it.
Daily Bitcoin/USD chart featuring a descending channel and Fibonacci retracement (TradingView)
With Bitcoin managing to close above US$35,000 on November 8, indicating a possible trend reversal, the current gain has altered the situation. After that, on December 6, there was a spike to US$45,000, driven by hope for the U.S. to approve the first spot bitcoin ETF and El Salvador to accept bitcoin as legal cash. Additionally, Bitcoin broke above the 200-day moving average, a commonly used long-term trend indicator.
The Stage of Consolidation
BTC has dropped to the US$40,000–US$43,000 level, unable to sustain its gains over US$45,000 despite the positive trend. Since BTC needs to process the recent surge and establish a strong base of support before making another move, this consolidation period should be viewed as a good corrective. Furthermore, several technical signs imply that Bitcoin needs to cool off after being briefly overbought.
On December 6, for example, the relative strength index (RSI), which gauges the velocities and sizes of price swings, crossed over 70, suggesting that a pullback may be imminent. The overbought pressure has since subsided as the RSI dropped to the neutral zone.
The Bollinger bands, which gauge price volatility and direction, are another indicator that suggests a consolidation phase. The 20-day average of movement that makes up the middle band of the Bollinger bands is separated into two outside bands by two standard deviations. A strong trend is indicated when the price travels outside the outer bands; a consolidation is indicated when the price moves inside the bands.