Bitcoin (BTC) price finally witnessed a significant 7% decline on December 11 as several indicators showed sell signals and traders booked profits. Bitcoin’s ability to hold above $42,000 will determine whether this collapse is a bearish opportunity or a general market reversal.
Short term volatility or major trend reversal?
The sharp drop in BTC price observed on the daily chart corresponds to a sudden 6.5% drop and long-term liquidation of over $300 million across the cryptocurrency market.
However, zooming in on the longer 1-day candle period, this move appears to be a slight retracement from the broader bullish trend that has been established over the past few months. Moreover, the Relative Strength Index (RSI) has retreated to the neutral range below 70.
Last week’s analysis confirmed a strong upward trend, with Bitcoin showing significant momentum after breaking above $40,000.
In this context, the recent downturn may be a short-term fluctuation within an ongoing upward trend rather than a general trend reversal, but a further downside or sideways move should not be ruled out in the coming days.
Key BTC price levels to watch
As mentioned earlier, important levels to watch include $31,860, $28,050, and $25,200, which have remained respectable since 2021.
Related: Bitcoin Dominance Threatens ‘High’ Even as BTC Price Eyes $45,000
Therefore, the fact that BTC price has not reached this level and that the recent uptrend has been strong enough to easily overcome a small resistance level supports the argument that the current price action is within a healthy correction range and not a bearish trend reversal. .
Healthy Coordination in a Bull Market
Corrections are considered a normal part of any upward trend. This is generally considered healthy for markets because it allows for consolidation and shakes off weakness, as evidenced by mid-November volatility.
If followed by a strong bounce, the current decline means the market is still in a positive trend and traders are buying the dip.
The recent price decline should therefore be viewed in the context of the longer-term trend, and so far at least, it appears to be more indicative of a temporary decline within a bullish phase rather than a complete trend reversal.
However, it should also be taken into account that previous Bitcoin bull markets have all seen declines of over 20%, just as each bull market stage has had long downsides.
This means that Bitcoin can fall much further without halting its overall upward trend. However, the ability to hold above $42,000 would further strengthen the argument that this is just a short-term decline and the overall sentiment remains bullish.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.