The Bitcoin price fell 9% in just 2 hours and recovered quickly.
Analysts are now divided on the direction of BTC in the near future.
The decline occurred as the major futures exchanges, such as Binance Futures, experienced large liquidations across the board.
In general, traders remain optimistic about the medium term as The News Spy has surpassed its record high. In the short term, however, technical analysts are cautious as BTC shows signs of peaking.
The daily price chart of Bitcoin. Source: BTCUSD on TradingView
Two factors make a major Bitcoin crash likely
In the short term, there are two main reasons why a deeper correction could occur.
Firstly, BTC faces strong resistance at $19,400 and $20,000. The recent retest at $20,000 met with a strong sell-off.
Second, volume in the Bitcoin market is beginning to shrink, reducing the likelihood of a sharp breakout above $20,000.
A pseudonymous trader known as „Beastlorion“ believes that the recent rejection makes a sustained recovery above $20,000 less likely. The trader:
„IMO, it makes most sense for $BTC to fall back on support before it actually breaks through the $20,000. It is a bit too far-fetched to go above $20,000 now on a sustained basis. If he retreats, this will serve as a spring for the following rally.“
The bearish market trend coincides with unfavorable volumes on the major spot exchanges. For BTC to break its all-time high, strong volume is required to support the uptrend.
However, a trader named „Byzantine General“ comments: „Volume analysis shows that the volume on the way to $20,000 was lower than in the previous uptrends. The trader about this:
„Some volume analysis. You look at the aggregated spot volume. We took out the local high, but the volume was much lower than in the previous rally. It really got going during the dumping. The volume could have told you that the rally was not real.“
Bitcoin would have to identify three key trends in the near future to rise above $20,000. These trends are increasing volume, the restoration of open interest in the futures market and consolidation above $19,000.
What the on-chain metrics show
Typically, the chain-internal movements show the general Bitcoin market trend.
According to Rafael Schultze-Kraft, CTO of Glassnode, Bitcoin tends to peak when the number of profitable BTCs moved in the chain reaches 65%.
Recently, the indicator reached 65%, and shortly after that a decline followed. This could increase the probability of a short-term relief rally. The analyst:
„How many Bitcoins moved on-chain are in profit? Great indicator to detect local highs when the return is above 65%. It looks like the recent reversal has only led to a slump from $19,000 to $17,000 – and has moved back up. Is there more upside potential here? I am looking closely.“
It remains to be seen whether Bitcoin’s rise from $18,200 to $19,400 in one day was the recovery rally. Currently, BTC is moving above $19,000 again, which indicates a stronger momentum.