Bitcoin was previously trending higher inside a wedge pattern but has since broken lower to signal that sellers aren’t quite done yet. The wedge spans $3,700 to around $4,200 so the resulting drop could be of at least the same size.
The 100 SMA crossed below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. In other words, the selloff is more likely to gain traction from here. Price has dropped by around $300 so far and may still have some room to head further south.
However, RSI is already in the oversold region and is turning higher to signal that sellers are exhausted and could let buyers take over. In that case, a pullback to the nearby resistance levels might be underway, possibly until the broken wedge bottom at $4,000-4,050.
Stochastic is also in the oversold region to reflect exhaustion among sellers. The oscillator may be turning higher to reflect a return in bullish pressure as well.
The recent sharp drop is being pinned on a downturn in sentiment, even as the cryptocurrency market has been off to a mostly positive start for the year. Based on sentiment tracked by TheTIE.io, the drop in hourly sentiment around 3:45 pm yesterday was followed by a prolonged stay in negative territory. The break below the key $4,000 barrier also likely drew more sellers to return.
However, some analysts still maintain that this is merely a short-term correction that could lead buyers to hop in at better levels. After all, expectations for institutional investment this year are still very much intact and traders might be on the lookout for price bargains.
Another factor that is being blamed for the drop is the recent 51% attack on ETC, which reminded market watchers of the vulnerabilities in the sector. This apparently led to a rewriting of the blockchain and double-spending, something that might also affect other coins at some point.