Bitcoin Erases 38% of 2020 Price Rally as Bears Gain Strength

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• Bitcoin's daily and 12-hour charts indicate the path of least resistance is to the downside.
• A break below immediate support at $9,074 (Feb. 4 low) would expose the support range of $8,700-$8,600, under which the focus would shift to $8,300 (head-and-shoulders breakdown target).
• A corrective bounce to resistance levels at $9,230 and $9,400 may be seen before a potential drop below $9,000, as the hourly chart is reporting seller exhaustion.
• A close above $10,028 (Monday's high) is needed to turn the tide in favor of the bulls.

Bitcoin BTC$89,404.69 dropped to three-week lows early Wednesday, erasing a significant portion of this year’s price rally.

The top cryptocurrency by market cap slipped to $9,095 at 08:30 GMT to hit the lowest level since Feb. 4, according to CoinDesk’s Bitcoin’s Price Index (BPI).

With the drop to multi-week lows, bitcoin has retraced nearly 38 percent of the rise from $6,850 to $10,500 seen in the six weeks to Feb. 13.

The rally may continue to unravel as the bears have been looking stronger in the last 24 hours.

The cryptocurrency fell below $9,400 during Tuesday’s U.S. trading hours, confirming a major bearish reversal pattern on technical charts. Additionally, sellers have breached the widely tracked 50-day moving average (MA) support for the first time since Jan. 3.

At press time, bitcoin is changing hands at $9,140 on Bitstamp, while its global average price as calculated by BPI is seen at $9,175.

12-hour chart

The head-and-shoulders breakdown seen on the 12-hour chart indicates a bullish-to-bearish trend change and has opened the doors for a drop to $8,300 (target as per the measured move method).

The outlook would turn bullish if and when prices rise above the lower high of $10,028 created on Monday.

Daily chart

The MACD histogram, an indicator used to identify trend changes and gauge trend strength, has dropped to the lowest level since Nov. 26, indicating the strongest bearish bias in three months.

The relative strength index is also reporting a bearish bias with a below-50 print. Further, the cryptocurrency has breached the 50-day average and is trading well below key support at $9,188 – bitcoin had turned lower from that level on Jan. 19.

All in all, the path of least resistance is to the downside. A break below the immediate support at $9,075 (Feb. 4 low) would invalidate the higher lows set up and bring in additional losses.

Popular analyst Josh Rager thinks bitcoin’s convincing move below $9,300 has set the stage for a slide to $8,700–$8,600.

That said, a minor bounce may precede a deeper drop as the intraday indicators are reporting oversold conditions.

Hourly chart

The hourly chart's MACD has printed higher lows, contradicting lower lows on price. That bullish divergence represents seller exhaustion.

As such, a corrective rally to resistance near $9,230 and possibly to $9,400 cannot be ruled out.

Disclosure: The author holds no cryptocurrency at the time of writing