Coronavirus And Three Key Reasons Why Bitcoin Price Dropped Below $9.4K

On February 25 Bitcoin price dropped another 3.07%, marking the second day of losses as global equities markets steeply corrected on fears of the coronavirus appearing in more countries.

Tweezer tops indicate that supports becoming levels of resistance

The price dipped below what most analysts touted as significant support at $9,450-$9,400 to a new 3-week low at $9,281 (being at $9,149 at the time of writing). Similar to the February 18-19 fall from $10,250 to $9,478, yesterday’s pullback was also preceded by a tweezer top candlestick pattern on the daily timeframe.

Yesterday Bitcoin price was keeping near the 50-day moving average and the volume profile visible range (VPVR) high volume node at $9,430-$9,319.

BTC USDT daily chart. Source: TradingView

If the price fails to keep this level, then it will possibly plunge below the February 4 price of $9,089. Below this level, the next support can be found at the 200-day moving average which also corresponds to a high volume VPVR node at $8,800.

This move would eliminate roughly 16% of the 21% gain Bitcoin made since rising from $8,327 to reach a local high at $10,500 on February 13.

Key $9,4K support broke but traders expect a bounce at $9,350

In the shorter time frame, traders will see that the relative strength index (RSI) has almost dropped to oversold territory and looks to be turning upward at 35.5. This would indicate that $9,335 could be a point of reversal and the price previously kept at the high volume VPVR node at the $9,350-$9,277 zones.

Coronavirus fears and the overbought conditions influencing Bitcoin price drop

Despite the 7.25% pullback of the last two days, it is still unclear whether the downstream move is technical or mainly caused by the correction in traditional markets which is encouraged by coronavirus fears.

Though some analysts warned of a steep bearish reversal will soon break the current uptrend, other analysts like Michael Van De Poppe assert that Bitcoin and altcoins had become overbought after the recent multi-week rally when Bitcoin price jumped from $6,400 to $10,500.

Traders looking to buy lower with 75 days left until the halving

Van De Poppe has long been sure that a 10% or larger pullback was necessary in order for cryptocurrencies to retest their underlying supports as traders book profits then get ready for the next leg up.

This way, he believes that the current uptrend is intact despite the short-term bearish conditions, which is reportedly due to crypto whales capitalizing on the high number of leveraged longs and overbought conditions which flood the market.

Delphi Digital CFA Kevin Kelly explained:

“This market is still highly speculative and conditions can turn on a dime, but taking a step back we are beginning to see some maturation as the level of sophistication across investors and traders increases.”

Notable Crypto Asset YTD Returns (USD). Source: Delphi Digital

Kelly pointed to the chart above which represents the distribution of gains amongst various crypto assets since the beginning of 2020 and said:

“The latest rally in the crypto market is quite a bit different from what we saw last year when BTC led most alternative crypto assets. The shift in leadership this year has favored other large and mid-cap names, many of which drastically underperformed BTC over the last year.”

Crypto trader contributor Scott Melker also made an important point for investors to keep in mind:

“The assets that are overbought and have had the largest recent gains are the ones that have the furthest to fall before finding meaningful support.”

Taking a wider view on the market, we can see that each previous support level is now a level of resistance. The traders are likely to view the current drop as a “buy the dip” opportunity.

If the event of an oversold bounce happens, Bitcoin price could reach the Bolinger Band moving average which is now positioned at $9,666 but it is also possible that the previous support at $9,650 will be a stiff level of resistance.