Bitcoin price continues to drop, pushing select altcoins closer to their critical support levels.
When an asset is in an overbought condition and traders are sitting on large profits, even minor negative news and events could trigger profit-booking. This seems to have happened following Janet Yellen’s adverse comments on cryptocurrencies during a virtual hearing with the U.S. Senate Finance Committee.
In the same meeting, Yellen also told Congress to “act big” in order to support the U.S. economy. Another round of stimulus would probably further weaken the U.S. dollar and drive investors into assets that are considered as a store of value. This means Yellen’s comments may have inadvertently boosted the sentiment surrounding gold and Bitcoin (BTC).
As the fundamental factors supporting the current bull run are still intact, the institutional investors who had missed out on the rally at lower levels may use the current dip to build positions.
Glassnode data shows that large investors have been aggressively adding Bitcoin to their portfolios and the number of wallets holding over 1,000 Bitcoin has risen to a new all-time high. Since the start of 2021, 164 new wallets with over 1,000 Bitcoin have been created, indicating that whales are bullish despite the current BTC price correction.
Let’s study the charts of the top-10 cryptocurrencies to spot the critical support levels where buyers may start cherry-picking.
Bitcoin has broken below the symmetrical triangle pattern but the bulls are currently attempting to defend the 20-day exponential moving average ($34,626). In an uptrend, traders buy the dip to the 20-day EMA as it offers a low-risk entry opportunity and a bounce off it reiterates the strength in the trend.
The 20-day EMA is flattening out and the relative strength index (RSI) has gradually dropped from the deeply overbought territory to the midpoint, which suggests a balance between supply and demand.
If the BTC/USD pair sustains below the 20-day EMA, it could drop to the 38.2% Fibonacci retracement level at $29,688.10. The bulls are likely to defend this support aggressively. If they succeed, this level may act as the support of the range while $40,000 could act as the resistance.
The positive view could be negated if the bears sink the price below the 50-day simple moving average ($27,596). Such a move could open the possibility of a fall to the 61.8% Fibonacci retracement level at $22,106.73.
Ether (ETH) rallied to a new all-time high on Jan. 19, indicating that the bulls are in command. The upsloping moving averages and the RSI near the overbought territory suggest the path of least resistance is to the upside.
Usually, after every breakout from a resistance, the price returns to retest the level. The same has happened in the ETH/USD pair where the bulls are trying to flip $1,300 into support. If they succeed, this level will act as a new floor.
The long tail on today’s candlestick suggests traders are buying on dips below $1,300. If they manage to close the price above $1,300, the pair may attempt to resume the uptrend. If the bulls push the price above $1,438.318, the pair could rally to $1,675.
Contrary to this assumption, if the pair sinks and sustains below $1,300, the next drop is likely to be the 20-day EMA ($1,129). A bounce off this support will suggest the sentiment remains bullish, but if the bears sink the pair below the 20-day EMA a short-term top may be in place.