The Bitcoin price correction starts: how far will it slide?

The Bitcoin price may be on the verge of a deeper correction, while the bullish momentum shows signs of weakening.

In recent months the price of Bitcoin (BTC) has seen a huge rise, gaining almost 100% in its climb from $10,000 to $19,800. However, the region of the historical high around $20,000 continues to show considerable resistance, rejecting the price on several occasions. On 4 December, a new rejection plunged BTC below $19,000.

In these days, the likelihood of a correction is slowly increasing accompanied by falling volumes. There are several reasons for a deeper correction, not necessarily a negative scenario for the market in general.

The region of the historical high still holds strong resistance
Daily chart of BTC/USD
Daily chart of BTC/USD. Source: TradingView
The region of the historical maximum has not yet been exceeded, as the graph shows. However, this is not unexpected, considering that many retail investors may have selected the 2017 ATH as a potential point of sale. This is the final hurdle before Bitcoin begins a new phase of price discovery, where it will be difficult to determine subsequent targets.

As Bitcoin’s price has reached an all-time high with an almost vertical trajectory, a net breakout beyond the record level does not seem likely at the moment. However, as long as the Bitcoin price remains in this area, several factors allude to a potential correction.

Specifically, the volume decreased significantly during the recent attempt to win $20,000, indicating a weakening of momentum. In addition, the various tests rejected by the current high open the door to a possible bearish divergence on the daily chart.

This divergence has not yet been confirmed, but shows some potential signs of a slight reversal of the trend. In the event of a correction, the decisive areas to keep an eye out for support are $16,000 and $14,000.

Not even the 2014 high has been exceeded in one fell swoop

The current price trend can be compared to the price action of the previous cycle. The peak reached in 2014 acted as the final resistance, after which there was a significant correction of 30%.

Often, this contraction returns to the previous resistance: as the graph shows, the level touched in that period corresponds to $800.

Then the previous peak turned into support during the correction, leading Bitcoin’s price to continue its run towards new historical highs.

As markets often move similarly over the course of each cycle, such a 30% correction would place the price of Bitcoin at $14,000. In addition, the previous high reached in June 2019 is also at $14,000, making the level a likely target for a potential support/resistance reversal.

This 30% withdrawal would not be bad for the market and is quite common. It could also provide a fantastic entry opportunity for laggards.

The graphs on shorter intervals indicate the ongoing formation of a potential reversal. The range has been defined, with the support represented by the green zone around $18,500. This level must hold up to support the bullish momentum.

Should the support fail, a new test of the zone around $16,000 is very likely. If the market wants to maintain the positive momentum, resistance above $19,500 must be exceeded to allow for further continuation. However, a classic support/resistance reversal is being configured.

The $19,400 resistance has been invalidated by a fake breakout, which is often confirmed when the exceeded level becomes an obstacle again, as the chart shows.

As a result, in order to gain further upward momentum, the US dollar will have to continue to show weakness and the Bitcoin price will have to take the $19,500. If this does not happen, new media tests at $18,500 and possibly $16,000 will come up for discussion.