Bitcoin, the world’s largest cryptocurrency by market capitalization, could be headed for a significant price correction in the near future, according to a new analysis by crypto analytics firm 10x Research. The report predicts Bitcoin could fall to around $38,000 from its current price of $42,600, marking a potential drop of over 10%.
This bearish outlook comes on the heels of Bitcoin hitting a two-year high above $49,000 last week, fueled by the hugely anticipated launch of the first Bitcoin spot exchange-traded funds (ETFs) in the U.S. However, the “sell the news” price action since then signals investor enthusiasm may be waning, leading to a shift in market sentiment from bullish to cautious.
According to the research firm’s founder, Markus Thielen, Bitcoin is exhibiting a bearish technical pattern known as RSI divergence. This occurs when an asset’s price reaches a new high but its momentum indicators, like the relative strength index (RSI), fail to confirm the move by making lower highs.
“Bitcoin’s RSI divergence signals correction,” said Thielen in the report to clients. He believes this developing pullback could extend as far as the key support area around $38,000 based on Bitcoin’s historical price action and current technical dynamics.
Essentially, the RSI divergence suggests upside momentum is slowing despite Bitcoin’s push into record price territory last week. This divergence between price and momentum often precedes a trend reversal or consolidation period.
The launch of the first U.S. spot Bitcoin ETFs by asset managers ProShares and Invesco was greeted with much fanfare from crypto enthusiasts. It was seen as a watershed moment for mainstream adoption. However, the “sell the news” response indicates traders may have gotten ahead of themselves, pricing in too much speculative euphoria too soon.
Now a period of stabilization and consolidation appears likely as markets reset following the ETF hype. Thielen believes $38,000 marks an important support area that could halt any potential Bitcoin selloff for now. This level aligns closely with Bitcoin’s 50-week moving average, which has reliably caught major downside moves during previous corrections.
Adding to the downside risks, the report highlights, is the upcoming redemption of the Grayscale Bitcoin Trust (GBTC) shares. Grayscale has enjoyed a first-mover advantage as the largest crypto asset manager with over $27 billion in assets under management. However, its Bitcoin trust charges a 1.5% annual fee compared to just 0.25% for the new spot ETFs.
As investors rotate out of GBTC into cheaper ETF options, selling pressure on Bitcoin could intensify, according to Thielen. “Investors will first sell before they transfer their BTC exposure to another ETF issuer. This will cause downside pressure for Bitcoin and remain an overhang,” he wrote.
In summary, while the launch of spot Bitcoin ETFs was an unequivocally positive development for crypto adoption long-term, the market appears to have gotten a bit overheated in the short-term. With investor sentiment cooling, technicals flashing warning signs, and the GBTC redemption underway, Bitcoin looks poised to retest lower support around $38,000. A break below that level would likely confirm a broader trend change from bullish to bearish.
Patient investors may view any substantial pullback as an opportunity to buy the dip. However, according to 10x Research’s analysis, conditions seem ripe for an extension of the ongoing correction before Bitcoin regains its bullish momentum. Though crypto markets are notoriously volatile, the analytics firm’s insights provide an informed perspective on potential price trajectories in the days and weeks ahead.
