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3 reasons Bitcoin price got rejected at $11,500 — and what comes next

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The price of Bitcoin (BTC) rapidly fell after surpassing $11,500 on Binance between Oct. 14 and Oct. 15. Within two hours, it fell to $11,280, recording a 2.3% drop. After the fall, analysts are expecting another minor pullback in the near term.

Three factors likely caused the rejection to occur include a sell-off on BitMEX, a major resistance level and the stock market pullback.

Bitcoin dropped as soon as the Dow Jones slumped

On Oct. 14, the Dow Jones Industrial Average (DJIA) dropped by 0.58%, after initially seeing a minor upsurge.

As the trend of the U.S. stock market trend started to shift, Bitcoin recorded a sharp decline. Within 15 minutes, BTC saw a 1.15% drop from $11,518 to $11,370.

According to the data from Skew, the correlation between Bitcoin and the S&P 500 has increased in recent weeks. In contrast, the realized correlation between BTC and gold has declined considerably in the last three weeks.

Bitcoin correlation vs. S&P 500, gold, VIX, USD. Source: Digital Assets Data, Cointelegraph Markets

The data suggests that Bitcoin is currently perceived more as a risk-on asset over a safe-haven asset. Whether that leaves BTC vulnerable for a pullback amidst a stock market downturn in the fourth quarter remains to be seen after a strong Q3.

BitMEX sell-off

Some on-chain analysts spotted a spike in selling pressure coming from BitMEX, with major market shorts coming through. Before the initial drop from $11,540 to $11,280 occurred, many multi-million dollar short contracts appeared on BitMEX.

Consequently, the open interest of BitMEX rose from around $397 million to $414 million, when the price drop happened.

The $11,500 level has become a resistance area

The repeated rejection from the $11,500 area has turned it into a technical resistance level in the short term.

Following the struggle of BTC to break above $11,500, traders have started to ponder the possibility of a drop below $10,900. 

The 3-hour chart of Bitcoin with key support levels

The 3-hour chart of Bitcoin with key support levels. Source: Michael van de Poppe

Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said the $11,300 support zone remains the most critical level. A drop below it could send BTC to $10,600, Poppe said, explaining:

“The view remains the same. Holding here and the market might continue moving upwards. Losing this area and I’ll target $10,900 and $10,600 next.”

Still, the medium-term prospect of Bitcoin remains positive, buoyed by optimistic on-chain indicators. Researchers at Glassnode found that 14% of the BTC supply is held in accumulation addresses.

The rising number of investors holding onto Bitcoin, likely for a longer-term investment strategy, is a significant catalyst for BTC heading into 2021. The researchers said:

“Bitcoin accumulation has been on a constant upwards trend for months. 2.6M $BTC (14% of supply) are currently held in accumulation addresses. Accumulation addresses are defined as addresses that have at least 2 incoming txs and have never spent BTC.”

The confluence of repeated rejections from the same resistance level depicts a weakening short-term trend. But in the upcoming months, various on-chain data points suggest the likelihood of a strong market recovery.

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Bitcoin

Top traders say Bitcoin log chart points to a 2017-style BTC bull run

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Peter Brandt, a well-regarded veteran trader, recently emphasized the high demand from institutions as a key catalyst for Bitcoin’s strong performance.

BTC/USD 1-month chart. Source: TradingView

The strong high time frame technical structure of BTC, especially the weekly chart, and the strengthening fundamentals are buoying the market sentiment. In a tweet, Brandt posted the above chart and said:

“Bitcoin—IF the current gains hold through end of Oct—is poised for the second-highest monthly close ever. $BTC Institutions are increasingly involved in Bitcoin ownership. Institutions mark the value of their assets monthly.”

In addition to the rise in trading volume and growing institutional appetite, investors are referring to the logarithmic chart to forecast a broader rally.

Raoul Pal focuses on the Bitcoin log chart

The log price chart is the most widely used scale by most technical analysts. A logarithmic chart simply means a chart that represents common percent changes with equal spacing in a scale.

Raoul Pal, the founder and CEO of Real Vision Group, says Bitcoin’s monthly log chart is highly optimistic. He wrote:

“Its a bitcoin kind of day. The monthly log chart with regression lines is really something to behold. One of the nicest, post powerful chart patterns I’ve ever seen.”

The technical reason behind the optimism towards the monthly log chart is mainly its clean breakout. Throughout the past four years, $13,000 has acted as a heavy resistance level.

The historical log chart of Bitcoin. Source: Raoul Pal

As such, on high time frame charts, like the weekly and the monthly chart, BTC always closed below $11,000, except for 2020.

Bitcoin’s clean technical breakout on the monthly timeframe is leading traders and investors like Brandt and Pal to make strong bullish calls on BTC’s price action. As Pal said, “if history rhymes, 2021 is going to be a BIG year.”

BTC/USD 1-month chart. Source: TradingView.com

Q4 2020 may end on a positive note

Apart from the numerous bullish technical and fundamental catalysts, the timing of the current rally is also in favor of a major Bitcoin bull cycle.

Bitcoin quarterly returns in percentage. Source: Skew

According to data from Skew, Bitcoin had not had three positive consecutive quarters since 2017. During that year, BTC reached its all-time high at $20,000 following its second block reward halving in 2016.

Bitcoin could possibly be on track to record a massively positive gain in the fourth quarter if it stays above $12,000. If so, that could lead to the same bull cycle pattern as 2017. Next year would also present the same post-halving cycle BTC saw in 2017, which further strengthens the narrative of a newfound bull cycle.