Bitcoin has historically been recognized for its extreme price fluctuations — a phenomenon that’s attracted speculators to the crypto space. Kwame Nkosi, a seasoned blockchain analyst, examines a potential bullish signal emerging from Bitcoin's 4-year chart: the inverse head and shoulders pattern. This pattern, which is mostly recognized for signaling bullish reversals, may imply a long-term trend reversal is on the cards for Bitcoin.
Decoding the Inverse Head and Shoulders Pattern
The inverse head and shoulders pattern, which is used as a reversal signal, develops at the base of a downtrend. It indicates an imminent change in market direction. It has a “head,” which is the lowest point. On each side of the head, you will see two “shoulders” which are higher lows, plus a “neckline” that connects the highs in-between those shoulders. According to Kwame Nkosi, the inverse head and shoulders pattern is an indicator of a bullish reversal for Bitcoin’s price trend. Typically, this pattern foreshadows an impending price surge.
Bullish Confirmation and Price Target
Once the price breaks above the neckline, the pattern is confirmed. In any case, this movement could indicate a major change from an overall bearish trend to a more bullish trend. For reference, the pattern found on Bitcoin’s 4-year price chart had a bullish price target of approximately $17,250. This target was calculated based on the difference between the lowest point of the head ($3,750) and the neckline ($10,500). The strength of this pattern increases as it comes on volume confirmation. This confirmation gives technical analysis the important second dimension to price.
Time Frame Considerations
As with any chart pattern, the inverse head and shoulders is more effective on longer time frames. First, use daily or weekly charts for better results. This suggests that the pattern's significance is more pronounced on Bitcoin's longer-term charts, making it a potentially strong indicator.
Examining Bitcoin's Dominance
Bitcoin’s continued dominance of the overall cryptocurrency market Another key factor to watch. Kwame Nkosi By the way, noted crypto analyst Kwame Nkosi sees the key line in the sand resistance level at 73.3 on the weekly BTC.D chart. An inability for price to break above this level would be a sign of a possible forming topping pattern. Should this resistance persist, it could mark the beginning of a multi-month decline in Bitcoin’s dominance. Analysts estimate a bottom level of 44.33 in 2026.
Resistance and Support Levels
An upward move above the 73.3 resistance level might indicate the continuation of Bitcoin’s dominance. Investors should keep a close eye on these levels to assess the overall health and direction of the cryptocurrency market.
Analyzing Moving Averages
Moving averages are incredibly helpful indicators for determining the general trend direction in crypto trading. There are two main types of moving averages that can be used for Bitcoin trading strategy. These are usually based on shorter or longer timeframes like 10, 20, 50 or 200 periods. Shorter timeframes tend to favor the day trader, whereas the longer timeframes will favor the long-term investor.
- Simple Moving Average (SMA): Averages prices over a specific period.
- Exponential Moving Average (EMA): Gives more weight to recent prices, making it more responsive to new data.
Golden Cross Strategy
The 50-day SMA and the 200-day SMA are two of the most popular moving averages used in the Golden Cross strategy. A Golden Cross is defined when the 50-day SMA crosses above the 200-day SMA, indicating a bearish to bullish reversal pattern.
On-Chain Data Analysis
These are three important metrics Kwame Nkosi always looks at when assessing whether Bitcoin is worth your while.
- Spent Output Profit Ratio (SOPR): Indicates the profitability of BTC transactions, showing real-time realized euphoria and capitulation.
- MVRV Z-Score: Has historically identified market tops and bottoms.
- Realized Price: Reflects the average cost basis of all BTC in circulation.
- 1+ Year HODL Wave: Tracks Bitcoin addresses that haven’t moved funds for at least a year.
- Supply Adjusted Coin Days Destroyed (CDD): Quantifies the total BTC moved, weighted by how long it was held, and standardizes that data by the circulating supply at that time.
Macroeconomic Conditions
Besides all these internal factors, macroeconomic conditions have been very important in shaping BTC price movements. Easy money on US shores has encouraged a rush to greater risk-taking. The National Financial Conditions Index underscores this trend, and it’s a trend that’s boosting Bitcoin.
Actionable Advice for Investors
Given these factors, Kwame Nkosi suggests the following strategies for investors:
Bullish Scenario (Breakout)
If Bitcoin breaks above the $107,572 near-term resistance level and the 73.3 resistance on the dominance chart:
- Increase Exposure: Consider increasing your Bitcoin holdings.
- Monitor Moving Averages: Watch for bullish crossovers on key moving averages.
- Track On-Chain Data: Look for confirming signals from on-chain metrics.
Bearish Scenario (Breakdown)
If Bitcoin fails to break above these resistance levels and dominance declines:
- Reduce Risk: Consider reducing your Bitcoin holdings.
- Set Stop-Loss Orders: Protect your capital with stop-loss orders.
- Diversify: Diversify into other asset classes to mitigate risk.
Breakdown of the inverse head and shoulders pattern, Bitcoin’s dominance, moving averages, on-chain data and macroeconomic backdrop. In this way, investors can better equip themselves to make more informed investing decisions in the fast-paced cryptocurrency space.
