Beware of Bitcoin's 'Shooting Star' at Record Highs: Godbole

Bitcoin BTC$89,594.88 started the new year on a high note after tapping into the six-figure mark in 2024. Most observers expect 2025 to be just as remarkable, with projections placing BTC at $185,000 and higher.

The road, however, may not be as straightforwardly bullish as expected, as the recent price action suggests sellers are looking to reassert themselves, raising the possibility of a notable price drop ahead.

We are referring to the price action of December, when bitcoin reached a record high above $108,000 but ended the month negatively, below $94,000, registering its first monthly loss since August.

The two-way price action formed a bearish reversal candlestick pattern called the "shooting star" on the monthly chart.

The candle features a long upper wick or shadow, reflecting a substantial gap between the high and the open for the given period, paired with a small body, representing a minimal difference between the open and close. The wick needs to be at least twice the size of the body, and the lower wick could be minuscule at best. In BTC's case, the upper wick is nearly four times bigger than the body, with a tiny lower wick.

The shape of the shooting star shows that buyers initially drove prices higher, only for sellers to take control near highs and push prices below the opening level, hinting at a renewed bearishness in the market.

"The bears are potentially in control," explains the CMT Association's Level III textbook, shedding light on the psychology behind the shooting star pattern.

The shooting star has appeared after a notable uptrend from $70,000 to over $100,000, warning of a potential bearish reversal ahead, which would be confirmed if prices dip below the December low of $91,186. That's the level to defend for the bulls.

Note that similar candles with longer upper wicks have marked previous bull market tops.

Short-term pain

The cautious message of the latest shooting star fits into the broader macroeconomic landscape, indicating challenging times for risk assets. It's primarily driven by recent hawkish signals from the Fed, coupled with rising Treasury yields and a strengthening dollar index.

Analysts, however, are confident that the Fed will walk back on its recent decision to signal fewer rate cuts for 2025, ensuring a bullish broader trajectory for BTC and risk assets in general.

My prediction for 2025 is simple: higher. Nothing has fundamentally changed since Nov. 5. February will be the best-performing month, with the recent Fed hawkishness still holding broader markets back short-term," trader and analyst Alex Kruger said on X.

"The Fed will swing back dovish sometime in Q1, with traders pricing more cuts back in," Kruger said.

CORRECTION (Jan. 3, 12:30 UTC): Adds dropped word "not" in second paragraph.