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After a sustained decline in Bitcoin value for some months, it is finally on a recovery path. The growth has been quite encouraging, with investors gearing to go for the kill once more. Before putting money in the coin following the growth, the investors have to understand its sustainability.

What is a Bull Trap?

Any typical asset has a growing trend where it steadily grows until the resistance level. It then stays on the resistance level for some time before keeping the upward direction. Immediately the asset moves past this level; typically, it keeps moving on, thus the rush for investments. At this point, traders are always sure of a return on investments; therefore, go for the long-term deals until a bull trap hits.

Bull trap manifests when suddenly the asset’s value makes a U-turn. While the short-term holders have the option to sell off their assets, the long-term majority are left holding on to the losing trades.

The bull trap can be so dangerous to traders as there is always the possibility of the value hitting lower than the initial prices, which is a loss. It is also quite hard predicting the stop of a bull trap. That is to say, traders not only have to face the financial loss but also with the emotional rollercoaster it comes.

The bull trap has been prevalent in the cryptocurrency market, with Bitcoin manifesting signs of one. As this article details.

Signs that Bitcoin’s Price Increase is a Bull Trap

After a long period of Bitcoin’s value decrease, reaching the lows of $3600, the coin has bounced back. The sudden upturn has it hitting the elusive $10000. While these are impressive figures, any ardent trader understands the need to look past the current numbers.

All the signs, for now, point to the price increase is a bull trap. The first sign is that the future funding of Bitcoin and other cryptocurrencies was negative before the upturn. The cryptocurrencies are always looking for a balance between the long term and short contract holders. A case of more short contracts than long term leaves a deficit that the short term needs to cover. An increase in the price of Bitcoin should have coincided with the number of long-term contract holders. Instead, only short-term holders increased with the liquidity of $79 million in assets.

Being a leading cryptocurrency, most of the developments on Bitcoin affects the other coins. Not the case with the increase in Bitcoin’s value as the other coins like Ether and XRP are still underperforming. It means traders are yet to regain confidence in the cryptocurrencies.

Lastly, Bitcoin is yet to pass the resistance level. For years, the $7,700 to $8,300 and $10,500 to $11,000 have proved to be the resistance level. There is still the possibility of a downward spiral.

Bottom Line

While the upturn in prices of Bitcoin in recent times is welcome news to investors, it is still quite early to determine sustainability. For now, all signs are that of a bull trap.

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