As we enter the new year of 2025, Bitcoin (BTC) is off to a promising start, having reached the six-figure mark earlier this month. Market observers are cautiously optimistic about the future of BTC, with many projecting prices to reach as high as $185,000 and beyond.
A Bullish Start with a Bearish Twist
However, despite the initial enthusiasm, recent price action suggests that sellers may be looking to reassert themselves, raising concerns about a potential price drop ahead. This is evident from the December price action, where BTC reached a record high above $108,000 but ultimately ended the month below $94,000, marking its first monthly loss since August.
The Shooting Star: A Bearish Reversal Pattern
This two-way price action formed a bearish reversal candlestick pattern known as the ‘shooting star’ on the monthly chart. The shooting star is characterized by a long upper wick or shadow, reflecting a substantial gap between the high and open for the given period, paired with a small body representing a minimal difference between the open and close.
Key Characteristics of the Shooting Star
- A long upper wick (shadow) at least twice the size of the body
- A tiny lower wick or none at all
- The presence of a small body, indicating minimal price movement
In BTC’s case, the upper wick is nearly four times bigger than the body, with an almost non-existent lower wick. This shape suggests that buyers initially drove prices higher, only for sellers to take control near highs and push prices below the opening level.
The Psychology Behind the Shooting Star
According to the CMT Association’s Level III textbook, "the bears are potentially in control" when a shooting star appears after a notable uptrend. This reversal pattern hints at renewed bearishness in the market and warns of potential price drops ahead.
A Bullish Reversal Ahead?
To confirm this bearish reversal, prices would need to dip below the December low of $91,186. That’s the level that bulls need to defend. Note that similar candles with longer upper wicks have marked previous bull market tops.
Macro Landscape: A Challenging Environment for Risk Assets
The recent shooting star fits into the broader macroeconomic landscape, indicating challenging times for risk assets. The primary drivers of this environment are:
- Hawkish signals from the Fed: The Federal Reserve’s recent decision to signal fewer rate cuts for 2025 has contributed to a strengthening dollar index and rising Treasury yields.
- Rising Treasury yields: Higher interest rates make borrowing more expensive, which can negatively impact risk assets like stocks and Bitcoin.
Will the Fed Walk Back on Its Hawkish Stance?
Analysts are confident that the Fed will reverse its decision to signal fewer rate cuts for 2025. This expectation is based on the assumption that the central bank will eventually walk back on its hawkish signals, ensuring a bullish broader trajectory for BTC and risk assets in general.
A Bullish Outlook for 2025
According to trader and analyst Alex Kruger, "my prediction for 2025 is simple: higher. Nothing has fundamentally changed since Nov. 5." He believes that February will be the best-performing month, with the recent Fed hawkishness still holding broader markets back short-term.
A Dovish Turn in Q1?
Kruger also expects the Fed to swing back dovish sometime in Q1, with traders pricing more cuts back into their expectations. This shift in monetary policy would likely lead to a bullish environment for risk assets.
As we look ahead to 2025, it’s clear that Bitcoin and other risk assets face challenges in the short term. However, with a possible dovish turn from the Fed and continued optimism from analysts, there are reasons to be bullish about the future of BTC and risk assets in general.
