Bitcoin Price Rejects $6.9K, But Is a Correction Now Imminent?
The price of Bitcoin (BTC) has shown a strong surge in the past weeks, as the price rallied from $3,750 to $6,900. However, the crucial $6,900 level wasn’t broken to the upside and confirmed as resistance. A similar move occurred on the equity markets, as the United States’ equity markets surged 25% in one week, but saw a sharp selloff of 4% in the last trading hour, going into the weekend.
These movements lead to the general question: is there more blood to come for Bitcoin and crypto?
Crypto market daily performance. Source: Coin360
Bitcoin price can’t break $6,900
The daily chart is showing a clear rejection at the $6,900 level, which is generally not a bullish perspective to look for. For bullish momentum, this area at $6,900 needed to be cleared, through which targets of $7,800 and $9,200 were back on the table.
BTC USD 1-day chart. Source: TradingView
However, the breakout didn’t occur, and therefore the price is now seeking support levels. Main areas to watch for are the $5,600–5,800, $4,750–4,900 and $4,250–4,400. All these zones are substantially higher timeframe support levels and should be used for potential long opportunities.
On the upside, the resistances are easily found through levels too. These levels are $6,350–6,400, $6,550–6,575 and $6,850–7,000. Breaking through the last resistance at $6,850 would certainly reintroduce bullish momentum.
Weekly timeframe rejects at 100-Week Moving Average
BTC USD 1-week chart. Source: TradingView
The weekly timeframe is indicating a clear picture. The resistance is the 100-Week MA at $6,900, the support levels are found at the 200-Week MA ($5,500–5,700) and 300-Week MA ($3,900–4,000).
Given that the price harshly rejected from the 100-Week MA, further downside is likely to be expected from the markets.
But what does this chart tell us more? Well, markets in general mature and take longer to reach their new peak after the previous cycle. This statement means that the current cycle will take longer than the last cycle.
The Bitcoin markets have seen several cycles, through which 2012–2014 was the first cycle, which saw the market rest on the 100-Week MA. The second cycle from 2014 to 2018 took four years and found support at the 200-Week MA.
BLX Index 1-week chart. Source: TradingView
Given that the price of Bitcoin is showing a bearish outlook — while still having a positive correlation to the equity markets — further downwards momentum is unsurprisingly expected.
Alongside with that information, there’s also a conclusion to be drawn from the previous cycle. Every cycle takes longer than the previous one, due to the maturity of the markets.
Combining these arguments results in the conclusion that the current cycle usually will take longer than the previous one. In other words, a bottom formation in the $3,800–4,000 area for several months wouldn’t be a surprise to investors, after which the bull market begins in 2021 and lasts through 2025–2026.
A breakdown of the 200-Week MA at $5,575–5,800 is necessary for a test of the 300-Week MA. If such a breakdown occurs in the coming weeks, then we can see a significant drop towards $3,800–4,000 as the next target as momentum builds.
Relief bounce on equity markets
Dow Jones Index. Source: TradingView
Equity markets have seen similar moves as in the cryptomarkets, and have seen one of the most significant surges in a period of a week. The Dow Jones index surged 25% in one week despite a new record of jobless claims and a skyrocketing number of confirmed coronavirus cases.
As discussed in the previous article, bubbles pop usually provide a 38–50% retrace in the first drop. The Dow Jones index dropped 40%, hit a robust yearly level at 18,000 points, and bounced upwards with 25%.
Crucial levels to be watched are the 21,750–22,000 and 23,000 points areas. The moment that these levels are rejected, further downwards momentum is likely to occur. Given that the equity markets have seen a positive correlation with other markets recently, further downwards momentum can, therefore, be expected from the cryptomarkets as well.
The bullish scenario for Bitcoin
BTC USD 2-hour chart bullish scenario. Source: TradingView
The bullish scenario is straightforward but less likely to occur given that the price just lost a significant support level and trend.
However, the moment that the price of Bitcoin can break through $6,600 and reclaim that level as support, further upwards momentum is warranted. The reasoning is that the previous support level can be confirmed as support again, turning the recent drop into a fake-out.
If such a reclaim occurs to the market, it’s expected to see continuation towards $7,500 or $7,800.
The bearish scenario for Bitcoin
BTC USD 2-hour chart bearish scenario. Source: TradingView
Unfortunately, the bearish scenario is more likely to occur at this moment. Price rejected at the $6,900 barrier, consolidated at that level for several days and broke down. The price of Bitcoin also lost an uptrend, which all indicates that there’s more downwards momentum to come.
However, in the short-term, there’s a possibility that the price of Bitcoin will retest some upper levels for confirmation of resistance. The levels to be watched are the $6,375–6,400 level (monthly level) and the $6,550–6,600 level (which is the previous support).
If the price of Bitcoin rejects at either of the two levels, further downwards momentum is warranted with the next potential pivot points being $5,600 and $5,750–5,800.
As discussed previously, it’s likely to expect further downside on all markets given the economic instabilities around the globe. It’s crucial to remain solvent and patient in these markets. Markets can remain irrational longer than you can remain solvent.
By Michaël van de Poppe