Bitcoin Analysis: Why Bitcoin Could Still Drop to $40,000

Everything looks great this week! The Bitcoin price chart is forming a green weekly candle with a relatively large body. We are currently moving above $71,500, and during the week, the $74,000 level was even tested. But it could just be a trap! Where will BTC go next? We will try to answer that again in our Sunday analysis.

Weekly Review: CME Gaps and Corporate Giants

I'll start traditionally with a review of this week. We entered it with a decent CME gap, which, as expected, was filled right on Monday afternoon. It was helped by Michael Saylor's announcement that MicroStrategy purchased 17,994 Bitcoin coins over the past week.

Usually, his announcements are a signal for a decline, but this time it managed to turn into growth. Of course, other tech stocks helped as well. We also see nice growth on the Nasdaq index (blue).

That growth continued throughout Monday. Furthermore, on Tuesday night, Donald Trump assured the world that if Iran were to somehow attack traffic in the Strait of Hormuz, the United States would strike twenty times harder than before and destroy everything in such a way that the nation would never recover.

However, the Relative Strength Index (RSI) was already starting to approach 70 points. The overbought threshold often signals a possible reversal and decline. Additionally, a bearish divergence began to form there on Tuesday.

Bitcoin Surged Impulsively, but Then Came the Rejection

This played out after an impulsive growth spurt associated with the announcement of existing home sales in the United States. A month-over-month decline was expected, but growth came instead. However, it didn't last long; the bearish divergence then played out, and until Wednesday's announcement of the inflation rate, the Bitcoin price dropped back toward $69,000.

The inflation rate relatively met expectations, and the Bitcoin price attempted to return above $71,300 on Wednesday afternoon. But a rejection followed, and the price returned below $70,000. On the RSI, however, a lower bottom can be found compared to a higher bottom on the price chart. A hidden bullish divergence, which began to manifest on Thursday.

Market Decoupling and Options Expiry

• Nasdaq Separation: On Thursday, there was a decoupling from the Nasdaq index. Tech stocks are dealing with a bursting AI bubble, and any strong correlation could eventually pull us down.
• Economic Indicators: The US reported a lower number of building permits but more housing starts. This did not bring significant volatility until the jumping rally after midnight.
• Options Expiry: Friday morning saw $1.9 billion in weekly options expire. With a balanced bull-bear ratio, the impact on markets was minimal.

US GDP is Falling Due to the Shutdown

A bit of uncertainty was brought to the markets by the afternoon revision of GDP estimates. The first US estimate was at 4.4%. A decline was expected (due to the shutdown), but the new value of 0.7% is truly surprising. And that number is still not final.

The BTC price continued to rise for a while longer, creating a provisional weekly high at $73,934. But then negative news regarding oil came out of Iran and, combined with an overbought RSI (75), a fairly steep drop followed. Bitcoin plunged by more than $3,000 within three hours.

At the time the Chicago Mercantile Exchange (CME) closed, it was moving around $70,936. Most of Saturday was spent waiting for the next impulse, which eventually pushed the price up by forming a +1% gap compared to Friday's close. This is likely a reaction to geopolitical tensions regarding Iran.

The Four-Hour Chart: Strong Supports and Resistances

When I look at the four-hour chart since the beginning of February, it's clear that we are primarily moving sideways. Candles are closing in the range between $62,800 and $73,700. That is a range of approximately $11,000.

I have marked the Fibonacci retracement on the chart. Its levels correspond quite nicely to historical reversals:

• Resistance at 127.2%: High rejections fall into this area. It looks like sellers are piling up there.
• Support at 100%: Currently trying to break $71,380.
• Potential Drop: Any further rejection could knock us lower to $68,100 (61.80%).

The Daily Chart: A Bearish Warning

Looking at the daily chart, I think any growth will definitely not be easy. Above us, we have the 50-day exponential moving average (50DEMA) and the 100-day. This reminds me of the beginning of January when the price chart was testing the 50DEMA with a similar RSI level.

If history rhymes, we could see an increase up to $78,000, followed by a rejection and sharper declines down to somewhere around $40,000 in early April.

I don't like this scenario much, but it would correspond to the bearish flag we drew on the daily chart last week. Perhaps only the fact that history never repeats exactly gives me hope.

The Weekly Outlook: Optimism Remains

I go to the weekly chart to fix my mood. The bullish Megaphone pattern is still forming. The last weekly candle completed an Inverted Hammer pattern, and it looks like this weekly candle corresponds to that pattern as well.

The weekly RSI keeps me in a good mood:
1. The downward trend line break has always been a harbinger of growth.
2. Support comes from a previous oversold RSI area (below 30 points).
3. The miners' cost price is around $62,500, acting as a strong potential support.

Alternative Metrics: The Sharpe Ratio

Using the CryptoQuant platform, we can examine the Sharpe Ratio. This ratio is currently in a rather unflattering area, meaning returns are not great compared to risk for short-term investors.