3 reasons why Bitcoin’s price fell to $11,600 and why it was not a surprise
The price of Bitcoin (BTC) fell after reaching a new high in 2020 of USD 12.486 in Coinbase. Over the last 48 hours, BTC fell by about 5%, causing further losses in the altcoin market.
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There are three key reasons why Bitcoin rejected the $12,400 level, namely, strong resistance, high funding rates and an overheated bullish run. But traders believe it was a healthy reversal that could strengthen BTC’s momentum.
Is a USD 1,000 correction healthy?
As seen in previous Bitcoin price cycles, the digital asset generally experiences a rapid increase accompanied by a strong correction.
For example, from January to February 2020, the price of Bitcoin rose from $7,400 to $10,500. In the following month, the BTC price dropped to pre-January levels.
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The price of Bitcoin also sees large spikes in volatility, probably due to the futures market. When BTC sees a relatively large rise or fall, it triggers a cascade of settlements, resulting in large price movements.
The slight decline of the last 48 hours has allowed funding rates to be neutralized, which means that the futures market is no longer saturated with long term contracts and over leveraged positions have been eliminated.
A potential consolidation phase for Bitcoin
Some traders say it was a healthy setback, which could temporarily lead to a period of stabilization or consolidation. Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said he would not be surprised if BTC traded between USD 12,200 and USD 11,200 in his latest technical analysis.
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Similarly, Nik Yaremchuk, a chain analyst and cryptomoney trader, said that BTC is showing signs of an earlier fractal found in May 2019. At that time, Bitcoin experienced two small corrections, recording several weeks of consolidation and then moving to a new high.
Bitcoin often sees historical fractals develop because the market likes to move in cycles, both short and long term. Yaremchuk pointed out:
„Another fractal: we have a base similar to that of May 2019. It feels like 1:1, because in both cases we have a triangle and a wedge within the upward widening wedge. It doesn’t look as perfect and optimistic as before, but after we reach USD 11,300 or USD 11,400, it will start a new run.
The BTC price tends to consolidate after seeing a significant run, especially before entering a key resistance range between USD 12,000 and USD 14,000.
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Sales pressure continues to decrease
Since June, a constant theme of Bitcoin’s current upward trend has been the decrease in selling pressure throughout the market. Glassnode chain analysts explained that Bitcoin reserves on the exchanges are much lower than the previous high seen in July 2019. They stated:
„The decline in BTC balances on the exchanges indicates a reduction in sales pressure. Currently 2.6M BTCs are held in the exchanges. Significantly lower than the last time BTC reached a local high a year ago (2.8M), and lower than before the March mass sale (2.9M)“.
The confluence of a neutral futures market, historical fractals showing similar price action, and declining exchange reserves support Bitcoin’s medium-term bullish scenario.