Bitcoin toll (BTC) performed every bit expected over the past week as viii% was shaved off its price of $7,571.80 between Dec. 8 and Dec. fourteen. Does this mean the digital asset is due for a reversal? As much as Bitcoin holders and I want this, one has to look at the facts.

Currently, Bitcoin has a distinct lack of bullish indicators that offer any promise of a short term reversal and fifty-fifty John Bollinger, the founder of the Bollinger Bands indicator tweeted out this somewhat ambiguous tweet on December. 13.

"Most cryptocurrencies are at or most Bollinger Band Squeeze levels. Fourth dimension to pay attention."

For those that don't know what this ways, allow me to explain.

Daily crypto market performance

Daily crypto market place functioning. Source: Coin360.com

What is a Bollinger Bands squeeze?

The Bollinger Bands indicator is a tool that many traders can't live without. Made up of three lines, the central line in ruby-red is the moving average (MA) and the lower ring serves as dynamic support, whilst the upper band serves as a dynamic resistance.

BTC USD daily chart

BTC USD daily chart. Source: TradingView

Genius in its simplicity, the bands automatically widen when volatility increases and contract when volatility decreases. For day traders, it's an invaluable tool to have, as the moving average tin have several purposes.

For example, if the cost of an asset is sitting on the MA for a long period, which is typically when there is fiddling to no volatility, the upper and lower bands begin to close in and "squeeze," which results in a breakout.

When the bands are wide, traders usually watch the price play between the MA and resistance, which means the MA serves as a level of support as well as betwixt the MA and the support, in which case the MA becomes the resistance.

When the bands are wide, it is typically a good time to merchandise, as yous i tin can ride between the support and resistance. It'due south almost predictable price action.

However, when the BB squeezes, information technology becomes hard to plant which direction the breakout is going to occur, and this is what John Bollinger is alluding to. There's going to be a big move, but which way?

The daily MACD is on the verge of a bearish cross

BTC USD MACD daily chart

BTC USD MACD daily chart. Source: TradingView

To gauge which direction a potential breakup could occur, the moving boilerplate deviation convergence (MACD) can offering some clues. The pattern that nosotros're currently seeing can also be seen in September when the price broke down by around $3,000. However, information technology can also be seen in October, where the price unexpectedly jumped upwards past $3,000.

Both of these movements coincided with a Bollinger Band squeeze. Simply is it probable that the Bitcoin price will repeat the same move as information technology did in late October?

The monthly MACD is just as bearish

BTC USD MACD monthly chart

BTC USD MACD monthly nautical chart. Source: TradingView

The monthly MACD rarely crosses. In fact, in the history of Bitcoin, information technology has seemingly only crossed iv times. As 2022 draws to a close, it looks as if Bitcoin holders will endure a lot of pain.

The last time this happened, Bitcoin lost 60% of its USD value, as it vicious from $8,500 in July 2022 to a low in the region of $3,300 in February 2022.

A threescore% drop from today's value of $7,100 would country the digital nugget around $2,840.

The RSI provides some promise

BTC USD RSI daily chart

BTC USD RSI daily nautical chart. Source: TradingView

At the moment, the Relative Strength Index (RSI) indicator is not showing an oversold reading.

The daily RSI is currently around 33.80 and as can be seen in the image above, Bitcoin previously did not feel a reversal until somewhere between the mid-20s and mid-teens in contempo months.

BTC USD RSI weekly chart

BTC USD RSI weekly chart. Source: TradingView

The weekly RSI isn't much better either. As shown beneath, its electric current reading is effectually 40, whereas the last time it bounced the RSI was reading 23.70.

BTC USD RSI monthly chart

BTC USD RSI monthly chart. Source: TradingView

Lastly, the monthly RSI shows a reading around 52. Simply on the monthly nautical chart, Bitcoin has always reversed around 42.

What all three of these RSI charts hint to is that Bitcoin is likely to fall farther before experiencing a bullish reversal.

Until the historic levels have been breached, there is no clear ownership bespeak to traders and whatever rally that happens betwixt now and the end of the yr is likely to exist short-lived.

Bullish scenario

BTC USD daily chart

BTC USD daily chart. Source: TradingView

Bitcoin price is sitting on the Bollinger Ring back up around $7,100 and if the bulls were to accept control, the key resistance levels would be the moving average at $vii,320 then $7,600 for a breakout. This opens upward the possibility of extending to the weekly Bollinger Band moving average around $9,300.

While I expect Bitcoin price to reach the CME gap, which closed at $7,265 last calendar week, history suggests that it may attain this price and quickly retrace dorsum to the back up.

Bearish scenario

We're most certainly in bear land and Bitcoin needs to agree $7,040 earlier opening up $half dozen,900 as the terminal primal support level until somewhere in the $5,000 region. However, the longer we stay sideways, the greater the opportunity for a bullish reversal as the lower Bollinger Bands volition elevator higher by the week across all longer timeframes.

As things stand, the downside could be as depression every bit $2,800 over the coming months but the longer Bitcoin stays in a sideways channel, the higher this figure will become.

The views and opinions expressed here are solely those of the @officiallykeith and do not necessarily reverberate the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own enquiry when making a decision.