Bitcoin is losing altitude as an unwinding of bullish bets is creating downward pressure on prices.

As of writing, BTC is changing hands at $3,780 on Bitstamp – down 5 percent on a 24-hour basis – having found offers above $4,000 at 06:00 UTC.

Notably, the price drop is accompanied by a decline in the bullish bets. For instance, the BTC/USD long positions on the Bitfinex exchange fell to an eight-day low of 31,237 earlier today and are currently down 8 percent at 31,255 – the biggest single-day drop since Dec. 19.

Further, the long-short ratio has pulled back to 1.35 from the five-month high of 1.5 reached yesterday, indicating waning bullish sentiment.

What’s more interesting is that the “long squeeze” comes after repeated failure on the part of the bulls to clear the key resistance above $4,100. So, it seems safe to say that the demoralized bulls are exiting the market and that could attract sellers.

BTC/USD longs and shorts

As seen above, long positions have dropped sharply, while short positions are largely unchanged on the day. That said, today’s sell-off could entice the bears, leading to a rise in shorts and a deeper drop in prices.

Daily chart

The bearish doji reversal – back-to-back doji candles and a negative follow-through – seen in the above chart indicates that the recovery rally from the December low of $3,122 has stalled and the bears have regained some control.

Validating that argument is the breakdown of the trendline connecting the Dec. 28 low and Jan. 6 low. The 14-day relative strength index (RSI) is also rolling over in favor of the bears.

Moreover, the failure on the part of the bulls to force an inverse head-and-shoulders breakout could be considered a strong bearish signal, especially since the bull flag breakout, witnessed in the 4-hour chart earlier this week, had set the stage for a break above $4,300.

As a result, BTC risks falling to the major support lined up at $3,566 (Dec. 27 low).

4-hour chart

With prices trading well below $3,934 (flag low), the bullish view put forward by the bull flag breakout on the 4-hour chart earlier this week is no longer valid.

View

The bearish doji reversal seen in the daily chart indicates an end of the recovery rally and has likely opened the doors to the bullish-higher low of $3,566 (Dec. 27 low). A break below that level would further strengthen the bear grip and allow a re-test of the December low of $3,122.

The confluence of the inverse head-and-shoulders neckline and the 50-day EMA, currently at $4,120, is the level to beat for the bulls. A high-volume break above that level would open up upside towards $5,000.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; Charts by Trading View