Bitcoin is losing altitude on Monday after hitting a new high of $ 58,332 during Asia's early hours.
The top cryptocurrency by market value is trading below $ 54,000 at press time, representing a 5% drop on the day, according to data from CoinDesk 20.
The pullback could extend further as the recent rally seemed overblown, according to David Lifchitz, CIO of Paris-based quantitative trading firm ExoAlpha.
"There could be a 15% correction, which would take some of the steam out of the hot market, before reaching new highs," said Lifchitz. "The more parabolic and faster a movement is, the more fragile it is, so a pullback would be more than welcome."
Bitcoin (BTC, -6.78%)
The recent rise from $ 30,000 to $ 58,000 was even more pronounced, which is why a healthy market cooling appears delayed, more so as various technical analysis tools, including the widely tracked Relative Strength Index (RSI), are signaling conditions. overloaded with a 70 reading.
"Technical indicators such as RSI and Stochastic on numerous charting time frames indicate that the crypto asset is overbought, implying that we could see a pullback soon," said Simon Peters, an analyst at EToro, in an email.
Peters also pointed to a bearish divergence on the technical chart, while warning of weakening bullish momentum and the possibility of a trend reversal that could cause prices to drop.
The MACD histogram, an indicator used to measure trend strength and trend reversals, has produced lower highs, contradicting higher highs on the price chart, confirming the bearish divergence.
Supporting the case for a price decline are inflation-adjusted US bond yields, as discussed last week.
The 30-year inflation-adjusted return, or real return, has turned positive for the first time since June 2020, and the 10-year real return has risen to -0.80% from lows close to -1.05% observed last month, according to data provided by the United States Treasury.
A continued rise in yields could propel the US dollar higher, putting selling pressure on stocks and bitcoin. Stock markets are trading lower at press time, and S&P 500 futures are down 0.6% on the day.
How low could the price of bitcoin go?
"The pullback can easily extend to the old resistance turned support near $ 42,000," said Joel Kruger, currency strategist at LMAX Digital. Markets typically shake up weak bulls with a dip to previous hurdle-turned-support levels before extending bull runs.
Bitcoin turned down from its all-time high of $ 41,962 on January 8, establishing that level as a crucial resistance and fell to $ 30,000 in the following days. The newly discovered resistance was escalated on February 8 after electricity maker Tesla announced its $ 1.5 billion purchase of bitcoins.
Crypto analysts hope other companies will emulate Tesla's decision to buy bitcoin. However, they may look to invest in price reversals, according to Lifchitz.
"$ 50,000 looks like the first stop for a slight pullback, but a second leg down could bring it down to $ 40,000, while the $ 30,000 zone looks like the ultimate bottom if things get ugly anytime soon," said Lifchitz.
However, Patrick Heusser, head of operations at Switzerland-based Crypto Finance AG, said that $ 52,000 is important support, adding that a significant correction may remain elusive as the derivatives market no longer shows a over-optimism.
Bitcoin's average funding rate, or the cost of holding long positions in perpetual futures traded on major exchanges, decreased (normalized) below 0.08% earlier today, having reached multi-month highs above 0.12 % last week, according to data from Glassnode.
While analysts are divided on the possible magnitude of an impending correction, they expect the flagship cryptocurrency to eventually reach new all-time highs above $ 60,000.