Bitcoin (BTC) Technical Analysis: Bearish Reversal or a Much-Needed Correction? Here’s What You Need to Know

Nothing in this article is to be construed as investment advice. Neither the author nor the publication assumes any responsibility or liability for any investments, profits or losses you may incur as a result of this information.

A $31 Million sell order placed during the Asian trading session at 03:00 (UTC+1), caused Bitcoin to shed over 22% of its recent bull market gains this morning. The flash crash, which saw BTC plummet almost $2,000, has been the largest sell off to take place so far this year.

Yesterday, the largest cryptocurrency by market capital was looking promising to continue its meteoric rise, as BTC recorded a new 10-month high at $8,390. At this stage however, Bitcoin was still dangerously close to its previous high of $8,340, which was achieved earlier in the week on May 14. Because of this, bulls were under increasing pressure to perform as fears of a double top were quickly spread throughout the crypto community.

A few hours later, Bitcoin reported its first dip below $8,000 as bull traders began to lose confidence and panic selling set in.

Right now, BTC is reporting a -8.23% drop against the US dollar. Bullish traders were quick to pushback against this morning’s crash, and have already managed to drive BTC back over the $7,200 mark.

Is this the start of a bearish reversal, or just a well-needed correction? Let’s take a look.

Bitcoin (BTC) Price Analysis

On the 4H BTC/USD chart we can see that there were a number of early warning signs suggesting that Bitcoin’s uptrend was losing strength:

  • On the RSI, we can see a clear contradiction between the price action and the RSI trends. Between May 11 and May 16, Bitcoin’s price action was consistently making higher highs in a strong uptrend. However, on the RSI we can see that the indicator line was trending in the opposite direction. This showed that bullish traders were becoming increasingly exhausted, and were likely to capitulate soon.
  • On the MACD, we can see that buying volume on the histogram turned into selling volume on May 15 - prior to BTC hitting its new 10-month high. The 12 and 26 moving averages also started to bearishly diverge towards the signal line. These were additional signs that buyers were beginning to lose momentum.

Once BTC hit the double top (orange circled areas), the asset quickly unravelled down to a strong uptrending support level (black arrow). This particular level had propped up the asset on several occasions during the last 10 days, as Bitcoin ascended towards new highs.

At this critical stage, it was looking increasingly likely that BTC was headed for a sharp decline. Momentum indicators continued to show a marked increase in selling volume, and eventually the support broke at around 21:00 on May 16 (UTC+1).

Right now, BTC bulls are attempting to defend a temporary support between the $7,150 - $7,200 levels. Looking at a number of 4H indicators however, we can see that a further decline is more than likely:

  • The 12-MA on the MACD has fallen below the signal line for the first time since April 25.
  • The RSI is heading towards the oversold region below, as selling momentum continues to increase.
  • Candles are heading towards the supporting kumo cloud on the Ichimoku indicator. If candles pass through this cloud, it will be a strong trend reversal signal.

Bitcoin (BTC) Price Targets

All ROIs are calculated from the asset’s current value at $7,150.

  • $6,800 (-4.90%)
  • $6,300 (-11.89%)
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