Bitcoin price (BTC) dropped another 3.07% on Feb. 25, marking the second day of losses as global equities markets sharply corrected on fears of the Coronavirus spreading to more countries.
Tweezer tops show supports becoming levels of resistance
The price dropped below what analysts have labeled as crucial support at $9,450-$9,400 to a new 3-week low at $9,281. Similar to the Feb. 18-19 drop from $10,250 to $9,478, today’s pullback was also preceded by a tweezer top candlestick pattern on the daily timeframe.
At the time of writing, Bitcoin price is finding support near the 50-day moving average and the volume profile visible range (VPVR) high volume node at $9,430-$9,319.
If the price fails to hold this level then a new lower low below the Feb.4 price of $9,089 is possible. Below $9,089, the next level of support can be found at the 200-day moving average that is also aligned with a high volume VPVR node at $8,800.
Such a move would erase approximately 16% of the 21% gain Bitcoin has made since rising from $8,327 to reach a local high at $10,500 on Feb. 13.
Key $9.4K support broke but traders anticipate a bounce at $9,350
In the shorter time frame, traders will note that the relative strength index (RSI) has nearly dropped to oversold territory and appears to be reversing upward at 35.5. This would suggest that $9,335 could be a point of reversal and the price previously held at the high volume VPVR node at the $9,350-$9,277 zones.
The price of Bitcoin also revisited this zone with 2 previous bounces at $9,335 on Feb. 25 and Feb. 19. Below $8,800, the situation becomes a bit trickier but the price appears to be supported at $8,200 and $8,000.
Coronavirus fears and the overbought conditions weigh on Bitcoin price
Despite the 7.25% pullback of the last two days, it is yet to be determined whether the downside move is technical or primarily driven by the correction in traditional markets which is fueled by Coronavirus fears.
While a few analysts from crypto-Twitter have run for the hills and shouted that a sharp bearish reversal that will break the current uptrend is bound to happen any day now, other analysts like Cointelegraph contributor Micheal Van De Poppe believe that Bitcoin and altcoins had become overbought after the recent multi-week rally which saw Bitcoin price move from $6,400 to $10,500.
Traders looking to buy lower with 76 days still left until the halving
Van De Poppe has long believed that a 10% or larger pullback was needed in order for cryptocurrencies to retest their underlying supports as traders book profits then prepare for the next leg up.
Thus, it is his view that the current uptrend remains intact despite the short-term bearish conditions, which previous reports by Cointelegraph suggest is the result of crypto whales capitalizing on the high number of leveraged longs and overbought conditions within the market.
During a recent conversation with Delphi Digital CFA Kevin Kelly, the analyst explained that:
“This market is still highly speculative and conditions can turn on a dime, but taking a step back we are beginning to see some maturation as the level of sophistication across investors and traders increases.”
Kelly referred to the chart above which shows the wide distribution of gains amongst crypto assets since the start of 2020 and explained:
“The latest rally in the crypto market is quite a bit different from what we saw last year when BTC led most alternative crypto assets. The shift in leadership this year has favored other large and mid-cap names, many of which drastically underperformed BTC over the last year.”
Cointelegraph contributor and crypto trader contributor Scott Melker also urged investors to remember that:
“The assets that are overbought and have had the largest recent gains are the ones that have the furthest to fall before finding meaningful support.”
Taking a wider view of the market, we can see that the price remains pinned between $9,350 and $9,800 and each previous level of support is now functioning as a level of resistance. At the time of writing, the absence of purchasing volume shows that traders are not viewing the current drop as a ‘buy the dip’ opportunity.
In the event of an oversold bounce does occur, Bitcoin price could rise the Bollinger Band moving average which is currently located at $9,666 but it’s also possible that the previous support at $9,650 will function as a tough level of resistance.