The price of Bitcoin (BTC) was unable to break through the resistance zone at $10,000 and corrected nearly 10% in a day. The drop down occurred on the same day that U.S. equity markets saw a substantial retracement.
These moves automatically made investors and traders fearful of further continuation of this correlation. However, is the fear that Bitcoin price will continue to drop if stocks correct further warranted, or was the BTC correction overdue after multiple rejections at $10,000?
Crypto market daily performance. Source: Coin360
Rejection at $10K forces BTC to lower support levels
BTC USD 1-day chart. Source: TradingView
The BTC-USD daily chart is showing a clear rejection at the $10,000 resistance, after which a substantial drop occurred.
However, the primary trend is still valid and it can be classified as an uptrend. The simple reasoning is that Bitcoin has been making higher lows since the heavy crash to $3,700 on March 12th.
Such an uptrend is signaled through higher lows and support/resistance flips. In this case, the most recent higher low is the level at $8,600. In order for the market to hold it’s essential to keep the upward momentum going through another higher low above $8,600.
In this scenario, the primary area to hold is the $9,050-$9,300 area as it has already provided support after the most recent drop.
This is significant because it’s a crucial area with many pivotal tests in the previous year. For example, the $9,050-$9,300 area provided support throughout the summer of 2019.
XBT USD 1-day chart. Source: TradingView
In that sense, the green zone between $9,050-$9,300 can be marked as crucial for direction. If Bitcoin price drops below the green zone and confirms it as resistance (through a bearish rejection), the market is likely in for a more protracted retracement towards the mid $7,000s.
However, if the price sustains this area as support, it’s likely to see bullish continuation.
What led to the $800 crash?
BTC USD 4-hour chart. Source: TradingView
The 4-hour chart clearly shows what occurred during the previous drop. The price of Bitcoin was acting inside a very narrow range, through which such compression usually ends with volatility.
Typically, when the compression period ends a ‘fake-out’ takes place before the real move occurs.
The 4-hour chart shows that Bitcoin tried to break above $9,850, but instantly got rejected at $10,000, which caused the price to drop.
The price dropped below $9,850 and more importantly, the recent support at $9,700. Long traders had positioned their stop-loss below the previous support and as the stops were hit the downwards move started to accelerate through a chain reaction in which only the first major support level can only stop the price from falling as this is the level traders are watching to step back in.
In the case of this downward fall, the area around $9,050-9,150 was the primary zone to hold.
Total market cap remains above the 100 and 200-day moving average
Total market capitalization cryptocurrency 1-day chart. Source: TradingView
The crypto total market capitalization is still acting inside an uptrend and more importantly, moving above the 100 and 200-day moving average.
Preferably, the green zone has to remain a support, however, a wick towards $240 billion is possible. As long as the $240-$245 billion zone remains support, further upside can be expected and the next resistance zone is targeted at $310-$325 billion.
If the $240 billion support is lost a crucial test of the $220-$225 billion area could occur. In that scenario, the lender of last resort would be to see the 100-day and 200-day MA serve as support.
Bullish scenario
BTC USD 4-hour bullish scenario. Source: TradingView
The 4-hour chart shows a clear structure for bullish momentum. The support at $9,050-$9,200 has to hold and even though a potential wick to $8,850-$8,900 could occur, a daily close above $9,050-$9,200 is preferred.
In that regard, a renewed test of the lows can occur to create bullish divergences or a double bottom. After that, reclaiming $9,300 is pivotal for further momentum.
Finally, a break of the $9,500-$9,550 area is the last crucial part. If the price of Bitcoin can break above that resistance it’s likely to start a renewed test of the $10,000-$10,500 zones.
This resistance has been tested many times and it’s even more likely to see continuation towards $12,000 once the resistance is broken.
Bearish scenario
BTC USD 4-hour bearish scenario. Source: TradingView
The bearish scenario is clean and straightforward. The primary pivot for this scenario is the $9,050-$9,300 area and losing that zone could indicate further downwards momentum.
However, what should traders look for in the bearish scenario? First of all, a rejection at the $9,600-$9,700 area could indicate a downwards test of the support zones at $9,050-$9,200.
The more often the support at $9,050-$9,200 is tested, the weaker it becomes as buyers become exhausted.
Through that, if the price of Bitcoin rejects at $9,600-$9,700 and loses $9,050-$9,200 as support, every bearish retest and rejection could be a signal for a potential short opportunity and further downwards momentum.
In that regard, losing $9,050-$9,200 could mark a more significant correction for the crypto markets in which the $7,500-$7,800 areas are the first massive support zones to be tested.
This does not mean that investors should expect continuation of the crypto bear market and we should remember that the price of Bitcoin has rallied massively since the March 12 crash.
A correction of 25-30 percent is healthy and not unnatural in a market that trends upward.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
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