- The Bitcoin price hovered around $35,000 and technical analysts said this point was a pivotal one on the daily charts.
- A break above this level could push Bitcoin back towards all-time highs around $41,000, while a marked drop below could trigger a fall towards key support at $30,000, they said.
- Although the longer-term outlook for both cryptocurrencies remains skewed to the topside, further losses look likely in the coming days," DailyFX strategist Daniel Moss said in a note.
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Bitcoin fell on Wednesday, heading for its largest weekly fall since late August, as a combination of a stronger dollar and a bout of profit-taking swept $172 billion in value from the cryptocurrency market since the start of the week, leaving the price at a pivotal point on the charts.
Rival coins such as Ethereum and Ripple Labs' XRP, along with smaller alt-coins Litecoin and Cardano, sagged after several days of heightened volatility.
Trade in cryptocurrencies has been booming for the last five months in particular. Bitcoin has risen by 230% in that time, hitting a record above $41,000 on January 8, while Ethereum has gained 217%, prompting a number of prominent investors to warn about the dangers of speculative bubbles.
Shark Tank star investor Mark Cuban on Tuesday compared the crypto trade to the dot-com bubble of the 1990s in a series of tweets, and like the crash that ensued in early 2000, said any bursting would see some coins survive, and others fail.
"The cryptocurrency market has come under fire in recent days, with Bitcoin and Ethereum both sinking lower as a wave of risk aversion sweeps across global financial markets. Although the longer-term outlook for both cryptocurrencies remains skewed to the topside, further losses look likely in the coming days," DailyFX strategist Daniel Moss said in a note.
Bitcoin was last trading around $34,580, up around 1.65% on the day on the Coinbase exchange.
With the retreat to $35,000, the Bitcoin price is hovering around key technical levels on the charts, and a break above, or below, those levels could pave the way for the next burst towards record highs, or a more protracted decline, analysts said.
"Failing to gain a firm foothold above last week's close ($38,200) would probably open the door for sellers to drive prices back towards psychological support at $30,000. Clearing that may pave the way for a push back towards former resistance-turned-support at the 2017 high ($19,891), Moss said.
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Bitcoin is still a full 95% above where it was a month ago, but the technical charts show that this latest retracement in price this week has brought a number of support levels – a level at which the price should hold in the event of a more aggressive sell-off – into play.
The Bitcoin price is nearing a key Fibonacci retracement level. Fibonacci retracements are a series of horizontal lines on a chart that show where support and resistance are likely to emerge based on an asset price's recent highs and lows and a breach of a key line can often trigger a swift move higher, or lower.
Chris Svorcik, a technical analyst who writes for FXEmpire, said Bitcoin needed to stay above $29,762, which is the half-way point between the low of December 11 and the high on January 12, or 50% retracement, to avoid a drop towards $26,000.
"As long as price stays above the 50-61.8% Fibonacci support zone, an uptrend has the best chance of continuing higher (blue arrow) for new high. Only a break below the deep Fibonacci levels would change and invalidate that view," he said.
Ethereum, which on Wednesday was trading up 2.8% on the day around $1,079 on the Kraken exchange, also finds itself at a tipping point on the technical charts. The price rattled to a three-year high at $1,350 late on Sunday, but its decline since then means it has now surrendered over half of the gains made since the start of 2021, leaving it hovering at a key Fibonacci retracement level.
"Ethereum would need to move through the 23.6% FIB and the pivot level at $1,069 to support a run at the first major resistance level at $1,131," Bob Mason, a technical analyst who writes for FXEmpire, said.
"Support from the broader market would be needed, however, for Ethereum to break back through to $1,100 levels," he said, adding: "In the event of an extended crypto rally, Ethereum could test resistance at $1,250 before any pullback. The second major resistance level sits at $1,212."
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