Is that a dead cat bounce?

Is that a dead cat bounce?
Ahura Chalki
Ahura Chalki
Published on: 26.01.2022 20:12 (UTC)
Post reading time: 2.48 min

BTC & ETH regaining some losses! 

While today stock markets also were in a recovery mode ahead of the FED meeting, cryptocurrency markets also met some sorts of regaining. Ethereum gained almost 22% from its recent lows, and Bitcoin is up by almost 17%. 

Before checking the technical chart, I have to mention that still news and data, have nothing serious to support the prices, contrary, the news about IMF pushing on El Salvador is warning about the stability and reliability of the crypto market. International Monetary Fund (IMF) has urged El Salvador to eliminate Bitcoin’s status as legal tender, due to concerns about financial stability, integrity, and consumer protection. This is while with decreasing prices, they purchased another $15 million in Bitcoin late last week. 

As IMF mentioned in its recommendation to El Salvador, the risks associated with Bitcoin-backed bonds, are part of the main risks for El Salvador consumers and the country's debts. The instability of the Bitcoin price can directly affect the whole nation's economy. Government plans to raise $1 billion through a “BTC bond” in partnership with Blockstream.

Price instability is not the only risk. Technical issues and the ignorance of many citizens prepare the ground for fraudsters. We had many reports that hackers utilized their national ID number to claim the free $30 in Bitcoin offered by the government to boost downloads of the e-wallet. 

And from the technical point of view, as we can see in the bellow figures of Bitcoin and Ethereum, the return that we had in the past two days, can be the dead cat bounce as well. A dead cat bounce is a trading term for the temporary increase in the price of an asset, during a long period of decline. Bounce is the short-term price increase that is preceded and followed by a decline. 

One of the needed but not essential conditions is that the bonus should not be more than 38.2% of its Fibonacci levels from the starting of a downtrend. As we can see in the bellow figure, Ethereum in its long downtrend movement, several times had a return. The first two returns happened from a bit higher than its 38.2% of Fibonacci levels. And now in the third return, the current price of around 2,600 - 2,700 US dollars is so close to the 38.2% of its Fibonacci level. If this time again price breach back under 23.6% of Fibonacci at 2,400, likely can move much lower and confirm that this one also was a dead cat bonus, as it was in the past two returns. 

In the Bitcoin chart, so far we had one return from 23.6% of its Fibonacci levels and it is going to be its second return. For this fall, from almost $52K to almost $32K, 38.2% of Fibonacci sits at $40K. Therefore as long as it moves under 40K, we can see the possibility of a sharp decline and count it as another bounce of dead cat!