Following a huge collapse since peaking at $69K in November, Bitcoin has been trying to form a base around the psychologically-important $20,000 level over the last several days. Will Bitcoin and cryptos keep on dipping, or will we finally see at least a corrective rally in this bear market?
Why has Bitcoin fallen so much?
Sentiment has been quite negative towards cryptos and risky assets throughout this year. This is all of course because of mounting concerns about inflation and a likely global recession. People have less disposable money for investing and luxury shopping. Meanwhile, central banks are removing liquidity from financial markets and are raising interest rates in order to control inflation, having overcooked it with all the monetary stimulus over the years.
BTC and other cryptos have tracked the stocks markets closely, which have also been on a decline so far this year. But the losses in cryptos have been much bigger, reflecting investors’ lack of appetite for risk-taking. Yields on government debt have rallied sharply as central banks started to tighten their belts, reducing the appeal of zero-yielding assets, like crypto and, to a much lesser degree, gold and silver.
In addition to the economic concerns, there’s been problems with the exchanges. Crypto lender Celsius halting withdrawals earlier in the month was an additional reason why prices fell, as this triggered a fresh wave of panic to add to the macro woes. Binance, which is the largest global crypto exchange in the world, also paused all Bitcoin withdrawals for a few hours last week. There have been reports of mass liquidations of leveraged positions. All this have knocked sentiment.
With everything going, there was little surprise to see Bitcoin sink a further 15% or so on Saturday as sell stop orders below the $20K handle were tripped. This sent BTC/USD tumbling to a new low for the year near $17.5K, before prices staged a quick recovery by the following day. Since Monday, though, the buying momentum has, once again, faded and Bitcoin finds itself at $20K again. This shows that sentiment remains highly fragile, with traders in no mood to commit.
But there is hope.
Can we see a recovery from here?
At around $20K, bitcoin is now severely oversold following a relentless sell-off. There’s the possibility we will see at least a short-term recovery, although so far, we haven’t seen any clear bottom pattern yet.
Incidentally, the area just below 20K also marks the high from 2017. Once a major resistance, this area could turn into a new long-term support. Furthermore, the 78.6% retracement of the entire 2020-2021 rally comes in at $117,800. Both of these levels have now been tested.
Meanwhile, major dips of 70 to 85 percent have historically resulted into major bottoms, as per the chart.
So, it is possible we may see a rebound to the next level of resistance at around $25,300 from here. But first thing is first: we need to see a confirmed bullish reversal stick. Sunday’s big rebound is a tentative bullish sign, but we now need to see a desire for price to stay above $20K.
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