Tuesday witnessed a Bitcoin-style roller coaster, with the cryptocurrency initially soaring to an all-time high of over $69,000, but as of 3:00 p.m. ET, it was down 10%, its biggest drop since November 2022. It recorded a daily decline.
Speculation has swirled around this dramatic downturn, including flash crashes, market illiquidity, fat fingers, and profit-taking, but the crypto community has yet to come up with a definitive explanation.
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However, the truth may be much simpler than speculation suggests.
Bitcoin has been and continues to be a high-risk investment, attracting investor flows during periods of bullish market sentiment. Historically, it has shown a strong correlation with tech stocks.
Therefore, on days when bearish sentiment dominates Wall Street, highly speculative segments of the market, including Bitcoin and other cryptocurrencies, tend to suffer disproportionately.
As of this writing, the Nasdaq 100 index, which has a high proportion of tech stocks, Invesco QQQ Trust (NASDAQ:QQQ) plunged more than 2%.
Chart: Bitcoin eyes worst performing session since early November 2022
BTC/USD Technical Analysis
Technical signals emerging from Bitcoin's daily chart suggest two potential patterns.
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- bearish engulfment
- Bearish RSI Divergence
Bearish engulfing formation on BTC/USD daily chart
Unless Bitcoin closes the session above $63,200, today's red candlestick completely engulfs the previous day's bullish candlestick. Essentially, a bearish candlestick covers the entire price range of the previous bullish candlestick.
A bearish engulfing pattern is considered by traders to be a strong signal that market sentiment is changing from bullish to bearish.
Traders often interpret this pattern as a signal to sell or take a short position in anticipation of further declines in the asset's price.
Bearish RSI divergence on BTC/USD daily chart
Since February 9th, the Relative Strength Index (RSI) calculated on Bitcoin's daily chart has been consistently overbought, with a brief exception from February 22nd to February 25th. It shows the level.
During the session when the cryptocurrency hit a new all-time high, surging to $69,324 on the Coinbase exchange at 10 a.m. ET on Tuesday, the RSI has now broken out of the overbought zone, technically termed as a bearish RSI divergence. It shows what is known.
A bearish divergence occurs when a price makes a new high during trading, but its upward momentum is weakening, indicating that buyers may be tired of pushing the price higher. I am.
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Image created using artificial intelligence in Midjourney.
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