The Bitcoin price has been declining throughout the past four days. Ever since its rejection at $19,420 on December 7, the dominant cryptocurrency has struggled to see renewed momentum.
For most traders, the $18,500 and $18,000 support levels were key to hold BTC’s short-term bullish market structure.
Throughout December, at least until the recent correction, Bitcoin had consistently recovered from $18,500. But, history often echoes, and on the third drop to $18,500, BTC dropped rapidly below it.
In the near term, traders appear to be expecting the Bitcoin price to test the $16,500 to $17,000 support range.
The 15-minute Bitcoin price chart. Source: BTCUSD on TradingView
Why $16,500 to $17,000?
There are two compelling reasons why traders expect a deeper Bitcoin correction in the short term.
First, the Bitcoin price broke two major support levels at $18,500 and $18,000 without a strong buyer reaction.
Second, historical fractals suggest that the Bitcoin price typically sees another major drop after a relief rally before bottoming out.
Good morning! pic.twitter.com/tZ1uUHdDCy
— il Capo Of Crypto (@CryptoCapo_) December 11, 2020
On December 8, before the Bitcoin price saw a strong correction, a pseudonymous trader known as “Crypto Capo” said a larger drop might come. At the time, BTC had seen a minor rally, which the trader described as a “dead cat bounce.” Since then, BTC dropped from $18,300 to $17,700.
Other traders also foresee $17,000 as the next potential bottom for Bitcoin because it marked the top of a major weekly candle in January 2018.
In technical analysis, previous peaks often act as a support area when an asset’s price breaks out.
Short time frame charts, like the 4-hour price chart, also shows that $17,000 is a critical support area.
Some traders believe Bitcoin could drop even lower than the $17,000 support level. If so, it could see a double bottom at the $16,000 region.
A strong argument for why Bitcoin won’t likely drop below $16,000
When the Bitcoin price saw its first major correction during its recent multimonth uptrend, it dropped to around $16,300.
At the time, the market was rattled because BTC reached $19,300 merely two days before the abrupt correction occured.
But, when BTC reached the $16,000 region, the U.S. market saw strong buyer demand. BlockTower’s Avi Felman noted that Coinbase saw a transfer from “weak hands to strong hands” as BTC rebounded from the $16,000 area.
Decent and extended Coinbase selling at the local bottom for the first time this rally suggests to me that retail is slowly picking up. Fairly obvious transfer from weak hands to strong hands over the last 48 hrs. pic.twitter.com/C1UefobR6D
— Avi (@AviFelman) November 27, 2020
Hence, if the Bitcoin price drops back down to the $16,000 region, there is a high probability that the buyer demand from U.S. investors would likely kick in.
In previous weeks, Time-Weighted Average Price (TWAP) algorithms led to significant buyer demand in the market.
Analysts speculated that since hedge funds and institutions typically use TWAP algorithms to buy assets, the institutional demand for Bitcoin was pushing up BTC.
In the past several days, TWAP algorithms have not been buying as aggressively, which might have amplified the selling pressure on BTC.
Considering that BTC is up four-fold since the March crash, short-term consolidation could further strengthen BTC’s medium-term uptrend.