Bitcoin is currently at a crucial price level as it approaches the potential ‘January effect’

Bitcoin has recently entered a technical correction, with its price falling to $94,830, down over 12% from its peak this month, as the anticipated “Santa Claus rally” failed to materialize. The price drop occurred in a low-volume environment, as many investors were still in holiday mode, with Bitcoin’s trading volume significantly reduced to $22 billion on December 29, compared to $41 billion a day earlier.

The pullback was also influenced by the Federal Reserve’s hawkish stance earlier this month, signaling only modest interest rate cuts, and concerns surrounding the potential creation of a Strategic Bitcoin Reserve and sluggish ETF inflows. Bitcoin ETFs have seen a decline in assets recently, with $35.6 billion accumulated since inception.

Looking ahead, Bitcoin investors are hopeful for a “January effect,” where assets typically rally in the first month of the year as investors adjust their portfolios. However, history suggests Bitcoin’s January performance has been mixed, with gains of just 0.62% this year, following a 39% rise in January 2023. In contrast, February tends to be a stronger month for Bitcoin.

Bitcoin is currently at a crucial support level, with the 50-day moving average providing key support, and the price has not dropped below an ascending trendline since November. However, a rising broadening wedge pattern has formed, a potential bearish sign. A break below this trendline could lead to further declines, potentially down to $73,777. Alternatively, Bitcoin could rebound and retest the upper part of the wedge, potentially pushing the price toward $110,000.