Is It Safe to Buy Bitcoin After Its Recent 20% Correction?

Bitcoin prices are catching a nice bounce on Friday after being hammered the day before. Let's look at the charts to see when bulls should buy.
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The cryptocurrency market continues to get investors’ attention, particularly as bitcoin prices have fluctuated in wild fashion over the past few days and weeks.

Currently, bitcoin prices are up 5.5% on Friday to about $32,500.

However, it traded as low as $28,800 earlier in the session, which followed Thursday’s beating when bitcoin declined by more than 13%.

At Friday’s low, bitcoin was down more than 20% from the close on Jan. 18, just four days ago. From its highs, it’s still down more than 22%.

The sharp rise and the subsequent volatility has shaken a lot of investors, particularly newer investors who are not accustomed to such volatility.

Now investors want to know what’s next - a larger pullback or a push to the highs. Let’s look at the charts.

Trading Bitcoin

Daily chart of bitcoin prices.

Daily chart of bitcoin prices.

Remember, the thing we love about bitcoin is that it tends to trade very technically. That's evident by the way bitcoin has traded up to key extensions and down to key moving averages and had strong reactions as a result.

Near the start of 2021, I took a look at bitcoin. The argument was, if bitcoin takes out the high — then at $34,800 — then a move to the 361.8% extension at $40,138 was in play.

A few days later on Jan. 8, bitcoin topped out at $42,00 and has been in a corrective phase since. So what are we looking for now?

Bitcoin was forming a wedge formation, with a series of higher lows and lower highs. Before Thursday, it was unclear if it was consolidating for a larger move higher or building for a deeper correction.

So far, it’s the latter, as wedge support was broken. However, the recent low from earlier this month near $30,635 stepped in as support. With the sharp recovery, traders now have a low to measure against.

With that said, it’s not a simple setup. On the upside, let’s see how bitcoin handles the 10-day and 21-day moving averages. Above both measures puts $39,000 back in play.

Above $40,000 and the all-time high is on the table at $42,000, followed by a possible move to $43,050 and $45,350.

On the downside, a loss of Friday’s low (at $28,800) puts the 10-week and 50-day moving averages in play. Under current circumstances, that seems like a very solid buying opportunity and the one I prefer. 

Below this area could put the 161.8% extension from the recent lower high in play, all the way down near $24,850.

Here’s the bottom line: Watch the 10-day and 21-day moving averages on the upside. Reclaiming them is good, while being rejected by them is bearish. On the downside, watch the 10-week and 50-day moving averages.