Bitcoin bull-trap or routine testing of the 365-day-average?

Bitcoin fell just below $100,000 and then closed above it again this week. The market panicked slightly due to the speed of the movement, and currently there are two opposing analytical views as to how this will continue. One camp believes we’re looking at the setup of a bull trap, the other believes this is a routine test of the 365-day moving average. Let’s explain.

Bull trap

A bull trap is a situation where a stock, or in this case, a cryptocurrency, temporarily breaks above a resistance zone, which initially appears to be a buy signal. Many investors interpret such a breakout as the beginning of a trend reversal and decide to go long. In this case, that was when Bitcoin dropped but then found support around $100,000.

If the price doesn’t rise further in the following days but falls again soon after, it turns out to be a false signal, and that’s what’s called a bull trap.

The word “trap” refers to the fact that investors are unintentionally “trapped” in a position that quickly becomes unprofitable because the expected trend doesn’t continue.

Routine test

The other side of the spectrum claims we don’t have to worry and that Bitcoin simply tested the 365-day moving average in recent days and is now ready to rise again. That average, calculated since the November 2022 low, currently stands at $102,000. So, for that camp to be right, Bitcoin must not fall below $102,000 in the coming days.

We’ll likely find out who was right this weekend.