A detailed analysis by renowned crypto analyst Rekt Capital has highlighted a recurring bearish fractal in historical Bitcoin price data, raising prospects of a potential crash below the $20,000 mark. Notoriously seen in 2019 and 2022, this model appears to be reappearing in the current 2023 market.
For those unfamiliar with it, the fractal indicator identifies potential turning points on a price chart in highlighting repetitive pricing patterns. Simply put, a bearish fractal suggests a potential price decline. Such a trend materializes when there is a price peaking with two consecutively lower high bars/candles on its flanks. An upward arrow usually marks a bearish fractal, indicating the potential for prices to decline.
Here’s Why Bitcoin Price Could Fall Below $20,000
The essence of this downtrend begins with a double top. Contrary to expectations, this double top is not validated with a passage below a significant support level. Instead, price typically experiences a relief bounce, forming a lower high, only to then collapse below the previously mentioned support.
This support then turns into a new resistance level, pushing the price even lower. This sequence was observed in 2019 and 2022, and the current market scenario in 2023 reflects the early stages of this trend. Rekt Capital suggests that the market is potentially in the middle of this bearish fractal, with uncertainty over whether the relief rally will conclude.
From the beginning of April to the end of August, BTC shape a double top pattern in the weekly chart. However, Bitcoin price held above the neckline at around $26,000. Then, in mid-August, BTC began its relief rally which took the price to $28,600. “We are probably in phase A to B of the bearish fractal,” the analyst added.
Digging deeper into potential scenarios, the analyst believes that Bitcoin price could rally to around $29,000 before experiencing further declines. Some key events to watch for include potential excessive extensions beyond the bull market support band. If Bitcoin fails to retest and hold this band as support after its breakout, the bearish fractal remains valid.
Another important point to watch out for is the revisit of the lower upper resistance. Even if price breaks above this resistance, a subsequent rejection would keep the bearish outlook intact. There are, however, criteria that could invalidate this bearish outlook: the bull market support band (blue) consistently holds as support, a weekly close beyond the lower upper resistance ($28,000), and a breakout beyond the annual highs of $31,000.
On the subject of other technical indicators, Rekt Capital highlighted that Bitcoin recently reached the 200-week MA. This moving average (MA), however, appears to be acting as current resistance. Additionally, the 200-week MA aligns with the lower high resistance, presenting a crucial moment for Bitcoin price in the near future. Despite its macro-bullish stance on Bitcoin, Rekt Capital warns that Bitcoin is yet to overcome the lower high resistance of $28,000 in the one-week chart.
On the daily chart, Bitcoin is hovering slightly above the 38.2% Fibonacci retracement bar. For Bitcoin to avoid a descent below the established trendline (shown in black), it is crucial that it maintains a position above $27,372.
Featured image from Shutterstock, chart from TradingView.com