Bitcoin runs into resistance cluster above $88K – What next?

Bitcoin's (BTC) bullish advance has encountered a resistance zone above $88,000, marked by crucial levels that could make or break the ongoing recovery rally.

The resistance cluster's first and perhaps most critical level is the 200-day simple moving average (SMA) at $88,356. The SMA is widely regarded as a key indicator of long-term momentum. Early this month, Coinbase institutional analysts called the downside break of the 200-day SMA in March a sign of the onset of a potential crypto winter.

So, a fresh move above the 200-day SMA could be taken to represent a renewed bullish shift in momentum.

Such a move would trigger a dual breakout, as the Ichimoku cloud's upper end is located close to the 200-day SMA. A move above the Ichimoku cloud is also said to reflect a bullish shift in momentum.

Developed by a Japanese journalist in the 1960s, the Ichimoku cloud is a technical analysis indicator that offers a comprehensive view of market momentum, support, and resistance levels. The indicator comprises five lines: Leading Span A, Leading Span B, Conversion Line or Tenkan-Sen (T), Base Line or Kijun-Sen (K) and a lagging closing price line. The difference between Leading Span A and B forms the Ichimoku Cloud.

The third and final level forming the resistance cluster is the high of $88,804 on March 24, from where the market turned lower and fell back to $75,000.

A make-or-break resistance zone?

Behavioural aspects of trading come into play when an asset approaches a resistance zone, especially at key levels like the 200-day SMA and the Ichimoku cloud.

Prospect theory suggests that people are typically risk-averse with respect to gains and risk-seeking with respect to losses, known as the “reflection effect." So, as traders, people tend to be risk-averse while locking in profits and keep losing trades open.

This tendency is amplified when an asset encounters a significant resistance zone. Traders who entered the bitcoin market around $75K, anticipating a rebound, may feel pressured to take profits as the price approaches this resistance. Such selling could, in turn, slow the price ascent or even trigger a new downturn.

Conversely, if bitcoin successfully breaks through the resistance zone, the fear of missing out could prompt more traders to make bullish bets, further fueling bullish momentum and pushing the price higher.