As the Bitcoin price dropped to sub-$7,000, technical analysts pointed out that BTC broke down from a crucial trendline dating back to March 16. While markets signal for short-term relief, traders foresee a severe pullback occurring for two key reasons despite less than three weeks remaining before the much-anticipated Bitcoin halving.
The two compelling cases for a Bitcoin correction in the foreseeable future are a breach of a major trendline signaling overhead resistance and a lower high pattern at a high time frame.
Despite theories that suggest the Bitcoin price was not supposed to drop below $4,000 during the so-called “black swan” event on March 12, BTC spiked from $3,600 to $6,900 on paper within a month and a half.
That is a 91% increase in price in precisely 40 days, which is a substantial rise in price even for Bitcoin whose extreme volatility is well known to investors.
When the Bitcoin price rises so steeply in a short period of time with no major pullbacks, it is often left vulnerable to a significant retracement. As seen in October and December 2019, the Bitcoin price can surge by 100 percent and still fall back to where the rally began faster than the upward price movement.
Various momentum oscillators suggest that the Bitcoin price has room for a relief rally in the near-term, possibly to the $7,100 to $7,200 range. But, the clean formation of a lower low on the daily chart of the Bitcoin price suggests that buyers are beginning to lose control over the market.
For the first time since the Bitcoin price dropped to $3,600, the daily chart of BTC printed a textbook lower low. Before the rejection of $7,400 and $7,200 in quick succession, buyers were clearly more dominant than sellers in the Bitcoin market.
Dips to the downside were small and bought up quickly, as buy orders dwarfed sell orders across both spot and futures exchanges. However, the severe rejection of $7,400 reversed the trend, creating a difficult environment for buyers to retain dominance.
As it was reported last week, the technically bearish structure printed on the Dow Jones Industrial Average with the appearance of the TD9 sell indicator could add selling pressure on most high-risk assets that include Bitcoin.
Although some key technicals remain bearish, two fundamental factors could also prevent Bitcoin from retesting the $4,000 lows in the short-term and stabilize the market.
First, the inflow of capital into Tether, the most widely utilized stablecoin in the global market, is rapidly increasing. If billions of dollars of Tether parked on exchanges in the likes of Binance start to re-enter the cryptocurrency market and flow into Bitcoin, it could protect BTC from more downside.
Second, alternative cryptocurrencies like Ethereum and exchange tokens have been rallying in tandem with BTC in the last several upsurges.
Both factors may potentially indicate that existing investors are willing to take on more risk out of growing confidence towards the market trend and protect Bitcoin from seeing another leg down in the upcoming weeks.