Bitcoin Price Reverses After Testing $28,590
The price of Bitcoin (BTC) has experienced a sharp reversal after reaching its highest level in two months at $28,590.
Factors Behind the Bitcoin Price Drop
As of October 3rd, BTC was trading around $27,390, marking a more than 4% drop from the previous day. The decline in Bitcoin’s price was accompanied by higher trading volumes, indicating a bearish sentiment among traders.
Soaring U.S. Bond Yields
The surge in U.S. bond yields has had a significant impact on Bitcoin’s price performance. On October 3rd, the benchmark 10-year Treasury note yield reached 4.75%, the highest level in sixteen years. This increase in yields was prompted by Federal Reserve officials indicating that interest rates would not drop until 2023 and 2024.
The rise in yields raises the opportunity cost of holding Treasuries, benefiting the U.S. dollar against other major currencies. Consequently, the U.S. dollar index (DXY) climbed to its highest level since November 2022 on October 3rd. A stronger dollar has historically been bearish for Bitcoin.
Overbought Correction
From a technical standpoint, Bitcoin’s pullback was expected due to its overbought relative strength index (RSI). On October 2nd, BTC’s four-hour RSI reached its most overbought level in over a month. An overbought RSI typically precedes a correction or consolidation phase.
Analyst Rekt Capital also suggests that the BTC price decline aligns with a pre-halving fractal from 2019. This fractal predicts that Bitcoin’s price will fall for another 28 weeks before rebounding to a new record high.
Long Liquidations Surpass Bitcoin Shorts
The decline in Bitcoin’s price was further accelerated by long liquidations overpowering short positions. Long liquidations occur when traders sell their holdings to protect against further potential declines. The combined effect of long liquidations and selling pressure in the spot markets pushes the price lower.
In the past 24 hours, long liquidations worth around $23 million were recorded compared to over $5 million in short liquidations. Funding rates have also dropped, but they remain above zero, indicating an overall bullish market sentiment.
Bitcoin Technical Analysis
The technical analysis of Bitcoin also suggests a possible bearish bias, with a classic bearish reversal pattern emerging on the daily chart. This pattern, known as a rising wedge, occurs when the price bounces between two ascending trendlines that converge.
If the price breaks below the lower trendline near $26,800, it could trigger a decline towards $24,000 in the coming months. On the other hand, if the price bounces before or after testing the lower trendline, Bitcoin may test the upper trendline near $28,400.
Hot Take: Potential Bearish Trend for Bitcoin
The recent reversal in Bitcoin’s price indicates a potential bearish trend for the cryptocurrency. Factors such as soaring U.S. bond yields and an overbought RSI have contributed to this decline. Additionally, long liquidations outweighing short positions have further pushed down the price.
Technical analysis suggests that Bitcoin could experience a significant drop if it breaks below its rising wedge pattern. However, a bounce from this pattern could lead to a retest of higher levels.
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