A confluence of events could have led to the sharp fall in Bitcoin’s price last week. Reports of the Biden administration hiking capital gains tax from the current 20% to 39.6% may have encouraged some traders to book profits on their gains.  

Another negative was the report that the Turkish cryptocurrency exchange Thodex CEO and founder Faruk Fatih Ozer had fled to Albania with $2bn of investors’ funds. This showed how an absence of regulations could result in scams on a large scale.

However, the price correction has not worried the long-term Bitcoin investors who believe the current pullback to be a healthy sign. The stock-to-flow (S2F) Bitcoin price-model creator PlanB said the correction this month is a “mid-way dip” that had also occurred in 2013 and 2017.

But Guggenheim Partners’ Scott Minerd has a different opinion for the short term. He said on CNBC that things were still looking frothy and a major correction in Bitcoin to $20,000 to $30,000 was likely. For the long-term, Minerd believes Bitcoin could rally to between $400,000 and $600,000. 

Is this only a minor blip or the start of a deeper correction? 

Bitcoin price technical analysis: weekly chart

Bitcoin’s price slipped 12.66% last week to close at $49,135.85. This was the first weekly closing below $50,000 since February. The pullback reached close to the middle band of the Bollinger Bands (tool to help a trader enter, exit, place stop loss orders and even spot when a potential breakout might occur), which is likely to act as a strong support.

The BTC/USD pair is currently witnessing a sharp rebound, indicating the sentiment remains positive and the bulls are buying on dips. If the bulls sustain the rebound, the pair could attempt to rise to $60,000.

However, the upper band has started to turn down, suggesting the pair is unlikely to have a runaway rally. If the price turns down from the $60,000 to $64,919.10 resistance zone, the pair may remain range-bound for a few weeks.

A break below the middle band will be the first indication of a possible deeper correction. The Bitcoin price weekly analysis shows the bulls are trying to stall the decline. Let’s perform the BTC price analysis of the daily chart to spot the overhead resistance levels that may act as a stiff hurdle for the bulls.

Bitcoin price technical analysis: daily chart

Bitcoin’s price had been running along the lower band in the past week. This shows a strong selling pressure from traders and a lack of buyers. The intense selling pushed the relative strength index (RSI) close to the oversold zone. When an asset is oversold, smart bears who had gone short at higher levels book profits and then wait for a rebound to short again. Similarly, countertrend traders buy in oversold markets to benefit from the bounce. The influx of such traders may have triggered the sharp rebound today.

However, the pair is still not out of the woods because traders who have bought at higher levels will try to close their positions when the price reaches their buy level. Additionally, the bears will try to initiate short positions when the price reaches the middle band. The downsloping middle band suggests that the advantage is with the bears.

If the bears succeed in stalling the relief rally near the middle band and the price turns down, then a drop to $47,035.80 is likely. If the sellers break this support, the decline may extend to $42,979.50.

The deeper the fall, the harder it will be for the bulls to start the next leg of the uptrend because people stuck at higher levels will act as a roadblock. The sentiment will turn bullish after the price rises above the middle band. That may attract more buying, resulting in a rally to the upper band once again.

How to trade Bitcoin this week

The recent sharp correction in Bitcoin suggests widespread pessimism about the prospect of price rises. The current relief rally is likely to face stiff resistance at the middle band. Therefore, buying when the trend has started to turn down could be risky.

However, if the price turns down from the middle band but does not break $47,035.80 support, then it will suggest the selling pressure has reduced. That could offer a buying opportunity for the traders.

Trade Bitcoin to US Dollar – BTC/USD chart

FURTHER READING: Bitcoin explained simply: everything you need to know

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