Shares of Grayscale Bitcoin Trust Form Bullish Chart Pattern: Technical Analyst

The future looks bright for the battered Grayscale Bitcoin Trust shares (GBTC), a technical analyst told CoinDesk, pointing to an inverse or reverse head-and-shoulders pattern on GBTC's price chart.

The reverse head-and-shoulders structure is identified by three price troughs formed along a resistance line, with the middle trough being the lowest and the other two relatively smaller and similar in depth.

The occurrence of the pattern after a prolonged and notable downtrend, as in GBTC's case, is said to signal a potential bullish trend reversal. The bullish shift is confirmed once prices top the common resistance line, called a "neckline" by technical analysts.

GBTC jumped to a six-month high of $13.54 Wednesday, testing the neckline resistance of the reverse head-and-shoulders pattern on the daily chart. A close above the neckline hurdle would confirm the breakout, opening the doors for further gains.

"Both anatomically and structurally, we do recognize an inverse head-and-shoulders pattern necklined around $13.00," Goncalo Moreira, a chartered market technician and author of VocabTA, said.

"The reversal formation would be fully confirmed with a daily close above this level, with a measured objective at $19.00, almost a 50% gain," Moreira added.

Grayscale is a subsidiary of Digital Currency Group, CoinDesk's parent company.

The bullish pattern has been in the making since early September and comes after a more than 80% price slide. A breakout and a subsequent expected rally to $19 would fill the price gap between $15 and $18 created in June last year when the shares were trending south.

GBTC has rallied more than 17% this week, decoupling from weakness in bitcoin's (BTC) price, thanks to the U.S. court questioning the Securities and Exchange Commission's rejection of Grayscale's attempts to convert the trust into a spot-based exchange-traded fund.

On Tuesday, the panel of appeals court judges appeared to be skeptical of SEC's logic of drawing a distinction between bitcoin spot market prices, which it considers prone to manipulation and futures market prices while rejecting Grayscale's spot-based ETFs. That has revived hopes of an eventual victory for Grayscale and the launch of a spot-based ETF.

"If judges turn more favorable, then there is the chance that GBTC Trust shares can be converted into an ETF. In that case, the discount in GBTC shares relative to the fund's net asset value could be quickly arbitraged away, and that's why GBTC shares are rallying now," Markus Thielen, head of research and strategy at crypto services provider Matrixport, noting the bullish pattern on the technical chart.