Bitcoin price defends $42,000 support as US ETF market proves better alternative for Chinese investors

●Bitcoin price is trading horizontally, trapped within the upper range of the Bollinger Indicator.

●BTC could make a 5% move north soon to clear the $43,750 blockade as volatility increases.

●A strong break and close below the centerline of the Bollinger at $41,880 would invalidate the bullish thesis.

●ETF specialist Eric Balchunas highlights how Chinese investors are flocking to the US ETF market.

Bitcoin (BTC) price has failed to show any directional bias for almost two weeks now, trading horizontally. The odds still favor the upside, however, based on technical and fundamental drivers.

Chinese investors stampede out of local market in favor of US-focused Bitcoin ETFs

Reports by Eric Balchunas, a specialist at Bloomberg Intelligence focusing on exchange-traded funds (ETF), highlight that “Chinese investors are stampeding out of their local market in favor of the US-focused ETFs”. This is seen with spikes in total volume of ETFs traded in China.

Total volume traded for China

According to Balchunas, quotas remain a challenge, as the Chinese are buying in at premiums of up to 43%, which has the government issuing warnings. Quotas are an official limit on the number or amount of purchases allowed.  

Nevertheless, Balchunas observes that  Chinese traders don’t care about the quotas because the US ETF market is hugely driven by the fear of missing out (FOMO).

It comes as the Chinese markets continue to suffer on the back of a real estate crisis. The situation is so extreme that the country had to tighten its stock market rules in a bid to halt a deepening sell-off in the world's second-largest economy.

Bitcoin price outlook comes into focus as crypto analyst calls for less volatility

Despite BTC ETFs in the US proving popular, Bitcoin price is trading horizontally, absent any directional bias. It is trapped between the centerline and the upper band of the Bollinger indicator at $41,919 and $44,278, respectively.

Although the odds favor the upside, given that the Relative Strength Index (RSI) is above the 50 midline and the Moving Average Convergence Divergence (MACD) and Awesome Oscillator (AO) indicators are in positive territory, the market remains indecisive.

According to @CarpeNoctom, a trader and analyst who examined BTC on the weekly time frame, more volatility contraction is needed before volatility expansion as the weekly Bollinger bands are somewhat spaced out.

The Bollinger indicator is interpreted such that when bands contract, it means volatility is reducing. The reverse is true in that as volatility increases, the bands expand. A significant contraction of the bands with the asset’s price between the upper band and the centerline means the odds favor the upside.

However, if the price of the asset lies between the centerline and the lower band of the Bollinger indicator, the market favors the downside. The volatility expansion follows this dynamic, expanding toward the direction in which the market is leaning.

With the Bollinger indicator traditionally used in the daily time frame, based on the evaluation by @CarpeNoctom, Bitcoin price could record a volatility expansion favoring the upside. The reasoning is that it lies atop the centerline of the Bollinger indicator at $41,919, with the upper band and the centerline coming together, thus showing volatility contraction.  

Increased buying pressure could see BTC shatter the upper band at $44,278, potentially extending the gains to the $46,000 psychological level. In a highly bullish case, Bitcoin price could tag $48,000 or extend a neck higher to the $50,000 level. Such a move would denote a 15% climb above current levels.  

BTC/USDT 1-day chart

On the flipside, if the bulls show weakness, the bears could seize the market, sending the Bitcoin price below the centerline. An extended fall could see BTC slip to the lower band of the Bollinger indicator at $39,560, marking a foray into the demand zone between $38,496 and $39,895. A break and close below the midline of this order block at $39,196 would confirm the continuation of the fall.

Next logical targets for Bitcoin price in such a directional bias would be $37,800 or, in a dire case, $30,000. A daily candlestick close below this psychological level would invalidate the prevailing bullish outlook.