The cryptocurrency market has had its share of ups and downs, creating new resistance and support levels. Sometimes the market tends to break through these levels due to factors in the market as it establishes new levels.
Cryptocurrency resistance levels are a point when prices fail to break through due to intense selling pressure in the market. Crypto Prices are expected to break the resistance level by an ample supply of buyers in that price area.
In a nutshell, cryptocurrency prices move because of demand and supply. If there is a more excellent supply of digital assets than demand, then prices drop. On the contrary, crypto prices rise when demand for cryptocurrencies is higher than supply.
However, some factors limit the prices from exceeding the resistance level. They include volatility, market sentiments, news, selling pressure, etc.
What is the Resistance Level?
Resistance levels in crypto mean that crypto prices have reached a point where the buyers are less inclined to buy crypto at a certain price level, and those who hold the asset or bought it earlier find the price attractive to sell.
In a nutshell, the resistance level of crypto is the maximum price of a digital asset as estimated by the market participants in a given period.
That said, the market can break its resistance level when there is increased demand and depending on the bullish mood of the market participant; hence, the price of an asset finds a new resistance higher, and the previous resistance level may turn into a support line.
On the contrary, support levels are the opposite of resistance levels. When crypto prices break beyond the support levels, it becomes the new resistance level as the market tries to establish a new support level.
Due to crypto’s high volatility nature, prices sometimes break the resistance and support levels; however, a few factors limit crypto prices from breaking through the resistance level. They include:
Regulations Governing its Sale and Use
The lack of regulation on cryptocurrencies makes participants believe in it because it eliminates intermediaries, and transactions are fast and transparent. However, many nations have tried to regulate the market to control and protect its users over time.
For example, President Joe Biden has been imploring his administration to administer a whole-of-government approach to agencies to report on cryptocurrencies and consider new regulations for the market. Other nations have followed suit while others are almost done, such as China, the United Kingdom, Japan, Australia, etc.
These regulations tend to have a negative effect on crypto prices. Several analysts at Morgan Stanley argued in June 2019 that regulation might influence bitcoin prices.
Regulation tends to deviate from crypto’s main agenda; that’s why any regulation decisions tend to make the markets drop, hence not breaking its resistance level.
Media and News
Cryptocurrency prices are sensitive to media and news, either good or bad because any authority does not regulate them. Therefore, any positive or negative news shared via the media will affect cryptocurrency values.
On that note, negative news tends to mitigate people’s trust in the market. It leads to people selling digital assets, which causes the price of cryptos to plummet.
So, negative media and news reports might limit cryptocurrency prices from breaking resistance levels.
Demand and Supply
Supply and demand in crypto markets describe the relationship between a digital asset’s supply and demand, affecting its price. Demand and supply cause fluctuations in the price of cryptocurrencies on the market.
A digital asset with short supply or with high demand will increase crypto prices. That means people in the market wish to buy it and are willing to compete by offering even higher prices, thus pushing them even higher.
Alternatively, if a coin has a high supply and the demand is low, it causes a drop in prices. In this case, crypto prices won’t break through the resistance level because market participants will be selling, pushing the crypto prices even lower.
Market Sentiment
Market sentiment in crypto markets is investors’ overall attitude and mood toward the market. In a nutshell, it depicts the summation of all market views.
When the market has a positive market sentiment, prices increase, while a pessimistic market sentiment causes a price fall.
A good example is when Elon Musk applauded Dogecoin, which made the digital asset price spike. One tweet from Musk gave investors more hope in Dogecoin, and more people got involved, thus causing a dramatic rise in its price.
On the contrary, negative market sentiments can cause a massive drop in a crypto’s price, hindering the coin from breaking through its resistance level. That’s because it attempts to weigh fear and greed in the market, and many investors want to eliminate missing out (FOMO). Therefore, it creates market greed, and investors want to get out of the trade for fear of losing their money.
Selling Pressure
Selling pressure mainly arises when there are negative movements in the market, and people get pressured to not miss out on easy profit (FOMO). It happens when most traders in the network are selling, thus driving a notion that the majority think the market price will decrease.
Selling pressure in the market often causes prices to dip as participants try to get their funds out before their value goes too low. Therefore, selling pressure will tend to deviate cryptocurrency prices from resistance levels.
Conclusion
Crypto price resistance levels are considered the ceiling above the price, while support levels can be considered the floor under the price. Cryptocurrency prices can fluctuate quickly, making it hard for them to maintain or break through their resistance levels.
Prices can rise and test the resistance level, which will either rise, and prices will break through and find the next resistance level or reverse to the upside. The factors mentioned above are some of the main reasons why a digital asset’s price can fail to surpass its resistance level. Some of them are based on past incidents in the market and are a testament to how they can quickly affect a crypto’s price.