The market sentiment around Bitcoin (BTC) is mixed as BTC price dropped almost immediately by 10% right after hitting its previous all-time high at $19,892 on Dec. 1.
Nevertheless, some analysts and fund managers anticipate the dominant cryptocurrency to rise past $20,000 in the short term. But others are adamant that there will be another correction first as seen in previous bull cycles.
Bitcoin sees a “minor” 10% drop
There are many compelling reasons to believe that a deeper Bitcoin correction is coming. In the past, multiple 30% to 40% pullback accompanied major uptrends such as in 2017. Thus, the current BTC correction of roughly 10% from the new all-time high is relatively minor by comparison.
Meanwhile, Mohit Sorout, the founding partner at Bitazu Capital, argues that Bitcoin could soon enter a bigger multi-month rally. He emphasized that the medium-term outlook of BTC remains highly positive despite the price failing to break the key psychological $20,000 barrier upon its first attempt.
Bitcoin price was rejected right before $20,000 with a strong reaction from sellers across the spot market. As Cointelegraph reported, on-chain analysts attributed the drop to a combination of miners and whales selling.
The futures market took a hit as well following the initial spot-driven sell-off. The derivatives market was already overheated before the drop reaching as high as $23,000 on the Chicago Mercantile Exchange, alongside a surging BTC futures funding rate and a record high Fear & Greed Index of 95.
Since the market was swayed towards buyers, this meant that if a minor drop occurs, the probability of a larger drop caused by cascading liquidations was high. This resulted in the drop that resulted in BTC bouncing off the $18,000 support area.
Is Bitcoin now on the cusp of a major breakout?
However, some analysts now expect BTC to break past $20,000 upon the next attempt.
Specifically, Sorout pinpointed the Relative Strength Index (RSI) of Bitcoin’s 1-month chart. It shows that in spite of the recent uptrend, the RSI is at 69, which is neutral. An asset becomes overbought if it surpasses 75 on the RSI indicator. He said:
“Zoomed out & couldn’t help but notice #Bitcoin is on the cusp of a truly special multi-month rally.”
Additionally, a pseudonymous cryptocurrency derivatives trader known as “Flood” echoed this sentiment. He said that a strong rally after a fakeout rally to the all-time high is not unlikely. He wrote:
“ATH fakeout followed by actual ATH would be classic. Longed $BTC here 18800.”
The possibility of a BTC price correction persists
Other traders, however, believe that the probability of a correction would continue to increase if Bitcoin consolidates under $19,000.
Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said that weakening momentum increases the likelihood of a pullback.
The likelihood of a correction is slowly increasing. $BTC
— Michaël van de Poppe (@CryptoMichNL) December 2, 2020
Technically, an argument could be made that the bull run of BTC is indeed overextended. After the past two minor pullbacks, lower time frame charts, like the 4-hour and 1-day charts, show Bitcoin treading closely above short-term moving averages (MAs). This signifies that BTC is not overbought on lower time frames.
However, on the weekly and the monthly chart, Bitcoin is still significantly above short-term MAs, which indicates a large correction could occur.
As Cointelegraph reported, some traders have said that a correction to around $13,000 should not come as a surprise for this reason as previous bull cycles have shown. If BTC drops further, the major support areas should be found at $13,000, $13,800 and above $15,000 on the high time frame charts.