Bitcoin Hits $18K Again, but the Correction Does Not Seem to Be Over Yet for 3 Reasons
The week had started well for Bitcoin. Indeed, its price had approached its All-Time High on November 24th, 2020 by reaching $19,390. From then on, I seriously thought that we would see the price of Bitcoin pass $20K by the end of the week.
I have to admit that I was wrong since the Bitcoin price suffered a strong correction afterward. I had been expecting a correction for several days, as I had indicated several times, but I thought that the Bitcoin rally would bring its price beyond $20K before the correction occurred.
An unexpected event, however, changed all that.
On November 26, 2020, Brian Armstrong, CEO of Coinbase, published a series of tweets that triggered a FUD sentiment in the market. This precipitated the fall in the Bitcoin price.
Within a few hours, the Bitcoin price dropped from over $19K to $16.5K:
Brian Armstrong triggers a FUD feeling around Bitcoin
As a reminder, Brian Armstrong’s tweet was as follows:
His series of tweets explains that Coinbase heard rumors last week that U.S. Treasury Secretary Steve Mnuchin was planning to quickly implement much stronger regulation on self-hosted crypto wallets.
The goal would be to have this regulation in place before the end of Donald Trump’s term of office on January 20, 2021.
If you are not used to certain terms from the world of Bitcoin and cryptocurrencies, self-hosted crypto wallets, which are often called non-custodial wallets or self-custody wallets, allow you to store your Bitcoins individually.
Your hardware wallet or your favorite wallet application fits into this classification.
Concretely, this concerns everything that allows you to have in your possession the private keys associated with your Bitcoins rather than leaving them on third party financial institutions.
This has naturally triggered a lot of concern, and the Bitcoin price has reacted strongly to the decline. Again, I would like to remind you that these are just rumors heard by people at Coinbase. Nothing concrete or any statement of intent at this time.
Brian Armstrong’s attitude seems to me to be rather light to spread such rumors.
The Bitcoin price has rebounded to cross $18K again
Since this significant bearish move, the Bitcoin price has begun its rebound. It first stabilized above $17K, before seeing a surge towards $18K yesterday afternoon and this morning.
At the time of writing, the Bitcoin price has once again crossed the $18K mark:
The Bitcoin price is exactly $18,115.
The big question now is whether the Bitcoin rally will resume in the direction of a new ATH, or whether the correction will resume even more pronounced.
For this, it will be interesting to see whether or not the $18K is rejected in the coming hours. The crucial threshold to be reached is the resistance at $18.7K. If the Bitcoin price crosses this resistance, the new ATH could again be a short term target.
We are obviously not there yet, and it seems possible that the correction we witnessed this weekend is not yet over. The rebound we are witnessing would therefore only be temporary before a larger correction.
There are 3 arguments in this direction. As always, we must remain cautious, since it is perilous to try to predict the Bitcoin price in the short term as you know.
1. Corrections in the Bitcoin price after a bullish rally are generally stronger than the one observed this week
You know as well as I do what Mark Twain said:
“History doesn’t repeat itself but it often rhymes.”
If history never totally repeats itself, there are always elements that make it possible to anticipate the future. Nothing guaranteed, of course, but elements that allow us to make hypotheses that often turn out to be correct.
With the Bitcoin price, this is something that often comes up.
After every bull rally like the one we have been experiencing since the beginning of October 2020, there has always been a strong correction until now. It was usually in the order of 20–30%.
Applying this to the $19,390 high that the Bitcoin price reached on November 24, 2020, we can expect a more pronounced drop between $13.5K and $15.5K. The Bitcoin price dropped to the $16.3K level in this week’s correction.
The correction may not be over yet. Some even think that the Bitcoin price could fall to the highest level of the rally we experienced in August 2020, which was $12.4K.
Personally, I remain fixed on a correction in the $13.5K — $14.5K range.
2. The famous Fibonacci sequence
You have probably already heard about the Fibonacci sequence in mathematics when you were in high school. Well, you should know that Fibonacci retracements are based on this sequence.
Fibonacci retracements are the name given to a tool used to predict potential support but also resistance levels for the price of an asset. It is something that is used in the stock market, but also for the Bitcoin price.
The first thing to understand is that it is one tool among others that offers no guarantees. It is simply something to know and take into account because many people pay attention to it. So it can really influence the Bitcoin price.
The Fibonacci sequence that accompanied the rally up to $19,390 places the 0.618 level at $13.5K. As a reminder, in the context of the Fibonacci sequence, 0.618 is considered the pivotal level for a potential trend reversal.
If the logic behind the Fibonacci sequence applied again this time around, we would see a more pronounced drop in the coming days.
3. Open interest in futures markets remains high
Again, nothing guaranteed, but just an indicator that many people in the Bitcoin market are watching closely. It is the open interest in futures markets.
When the open interest in the futures markets stays above $1B for a long time, the Bitcoin price tends to drop afterward.
This is something that happens very frequently, hence the importance of observing this metric. Currently, in the three largest BTC futures markets, namely OKEx, Binance Futures, and CME, the open interest are $1.15B, $0.99B, and $0.96B respectively:
This could be another signal of a larger correction to come if the Bitcoin price were to reject the $18K.
After reading the various elements I have just presented to you, you have understood that there is a great deal of uncertainty surrounding the Bitcoin price for the coming days. Some people think that the bull rally is not yet over and that a new ATH is possible in the coming days.
To do so, it will be necessary to see if Bitcoin can break through the significant resistance at $18.7K.
If the Bitcoin price were to reject the zone around the $18K it is testing, we could see the correction resume its course with a descent around the $13.5K — $14.5K zone quite possible.
As always with Bitcoin, the next few days promise to be exciting.