$ 42,500 could be new critical support level after break attempt

Bitcoin surged more than 7% overnight in Europe as the world’s leading cryptocurrency tried to limit three weeks of decline, but a new test of $ 42,500 may be needed before the market establishes clear direction.

The price of a bitcoin rose from $ 40,900 at 10:31 p.m. CET on Wednesday to $ 43,865 at 6:04 a.m. CET on Thursday, according to the Luxembourg-based exchange Bitstamp.

There was no clear fundamental catalyst for the pump, although some news agencies linked it to remarks by Gary Gensler, the head of the United States Securities and Exchange Commission, who yesterday reiterated his support for the Bitcoin exchange-traded funds (ETFs) based on futures contracts.

A more plausible explanation from a technical analysis perspective is that traders were trying to break out of the short-term downtrend that bitcoin has been stuck in since September 7th.e – the day El Salvador adopted bitcoin as legal tender.

Two earlier attempts to reverse the trend were made on September 24e and 27e, but both were rejected at the exponential moving average of 144 on the 2-hour chart.

This morning’s rally weakened at this level as well, indicating that bitcoin failed to resume its long-term uptrend or entered consolidation mode before a possible rise.

If the latter scenario holds true, traders will look for a support level to test and validate the bullish momentum. At the time of writing, the most obvious short-term candidate was $ 42,500 – a fixed level that provided short-term resistance on five occasions on Tuesday and Wednesday.

This level also largely coincides with the 144 and 200 exponential moving averages on the 15-minute chart.

Technical analysis is the use of chart-based indicators and models to identify support and resistance levels – subjective ranges that should, in theory, push the price higher or reject it lower.

Although many are skeptical of this approach, financial circles increasingly accept that it has the potential become a self-fulfilling prophecy. Any level that achieves widespread notoriety among traders is likely to attract a large number of limit and stop orders, inviting a showdown between bulls and bears with sufficient trading volume to stimulate price discovery.

Flat levels and moving averages are among the most watched patterns and indicators as they are set relatively objectively and therefore are more likely to be on the radar of a large number of market players.

If $ 42,500 is tested and exceeded on the downside, the next major support level will likely be $ 41,000. Price has rebounded from this level five times in the past ten days.

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