Yesterday, crypto bulls began celebrating as Bitcoin poked its head above resistance at $12,000 momentarily, before pulling back ahead of the first daily close of the new month.
The failure to set a new high, coinciding with some bearish technical signals and underlying market factors, may have prompted the selloff. But how low will this correction go? Is this another opportunity to buy the dip, or is this a more extensive reversal?
Bitcoin Price Forms Head And Shoulders After Today’s 6% Correction, Targets Retest of $10,000
Bitcoin price has been on a slow and steady uptrend most of 2020. The only discrepancy was the Black Thursday collapse in mid-March that took down stocks, crypto, metals, and more.
All signs are pointing to the crypto asset’s next bull trend beginning, but key resistance levels remain. With $10,000 now a thing of the past, the primary resistance lies above $12,000, and above there, $13,800 where the June 2019 top took place.
Related Reading | VIX Raising “Red Flag” On Stocks, Could Be Bearish For Bitcoin
After several attempts, Bitcoin may have made its last try to hold above $12,000 for some time, given the severity of today’s $750 drop and the formation of an ominous top pattern.
In addition to diving over 6% already from last night’s daily close, less than 12 hours later it has put the cryptocurrency at risk for confirming a head and shoulders pattern.
BTCUSD Head and Shoulders Top Formation Chart Pattern | Source: TradingView
Head and shoulders are a bearish reversal pattern often found at the top of a trend. These patterns are characterized by a left and right shoulder, with a peak or “head” in between. The pattern represents a tug of war scenario playing out between buyers and sellers, where ultimately, buyers lose.
The pattern confirming would take Bitcoin below the support level at $11,350 that’s currently holding, potentially causing a cascade of selling and stops being hit, pushing Bitcoin to a new local low.
As for how far that may go, $11,000 itself could act as support. However, the head and shoulders top target would send Bitcoin tumbling back down towards $10,250, which is where the previous high lies prior to the impulse up from consolidation.
Related Reading | This Unique Perspective Makes It Clear Bitcoin Cycles Are Lengthening
Just as Bitcoin price required several attempts to break through $10,000 before it was able to hold, above $12,000 could require similar strength gathered after plenty of tries.
Resistance at $10,000 was a tough nut to crack, losing that support would be devastating for Bitcoin, and could put any early signs of a new bull market in serious jeopardy.
Will Bitcoin hold at $11,000, or $10,000 below it, and revisit $13,000 and higher? Or was this the top for 2020 and things are going to cool off in crypto for a while once again?