The cryptocurrency later pulled back by circa $400 amid profit-taking.
It found support near $9,000, raising concerns about an extended move towards $7,500.
Bitcoin’s impressive rebound from its mid-March lows extended its upward move above $6,400 on Wednesday. But the price action left the cryptocurrency alarmingly overbought – even raising the possibility of a $1,500 price correction.
The bitcoin-to-dollar exchange rate failed to hold the $6,400-level and fell by circa $400 into Thursday, showing an extreme amount of selling near the top. The pair eventually plunged to its intraday low near $9,000, a level that held it from extending its downside correction any further.
It is not a standalone incident. Just a week before, bitcoin pierced above $9,400 but declined back to as low as $8,407 on Coinbase crypto exchange. The fractal suggested that there is a great deal of bearish sentiment that resides near $9,400. It also shows that $9,000 is a weak support level.
BTCUSD corrected lower after closing above $9,400 | Source: TradingView.com
Moreover, the $6,400-level coincides with Bitcoin’s long-term Descending Trendline, a historically accurate resistance level since December 2017. The small red bars in the chart above show how the cryptocurrency’s every upside attempt never flourished into a bull run after testing the Trendline resistance.
The combination of two substantial price ceilings served as a hint of a deeper pullback.
Consolidation before Drop
Traders are at best cautious near the $6,400-$6,500 resistance area, waiting for whales to decide the next market bias. The wait-and-watch sentiment surfaces in the wake of bitcoin’s mining reward halving on May 12. Traders expect the event to cause a FOMO price rally that would serve near-term profitable opportunities in both the spot and derivatives market.
The trend is highly visible on the Chicago Mercantile Exchange (CME). The derivative exchange spotted a dramatic surge in the total number of open bitcoin futures contracts – it rose to $399 million as on Thursday, its highest since May 2019. The resurgence marked the entry of professional traders into the market.
Bitcoin Futures’ open interest on CME | Source: Skew
But the OI tops also followed deeper pullbacks in bitcoin’s spot prices, as shown in the Skew graph above. Overall, the OI-price uptrends appear as a cycle. And as bitcoin near its crucial resistance levels, the current OI-price uptrend could exhaust, as well.
Bitcoin now risks falling to $8,500 as the first sign of a correction. An extended plunge could have it test the 50-day moving average wave (blued). By then, the 50-DMA would coincide with $7,500 – historical support.
Photo by Goh Rhy Yan on Unsplash