Bitcoin (BTC) price has increased from $ 10,995 to over $ 10,200 in the last 12 hours. But while BTC’s momentum also pushed up the price of other top cryptocurrencies, including Ether (ETH), key metrics and technical patterns suggest that the chances of a pullback are increasing.
Snapshot of the cryptocurrency market July 31. Source: Coin360
Three factors that suggest a drop are the fear and greed index, a possible Wyckoff pattern and great resistance.
Crypto market sentiment is “greed”, data show
According to data from the Alternative.me Fear and Greed Index, market sentiment is greedy. The index has reached 75 points, and every time the index reached a clear peak, Bitcoin corrected.
The Crypto Fear & Greed Index 1-Year Index. Source: Alternative.me
The last time the index hit a local high was in February 2020, when it hit 65 points. A month later, the price of Bitcoin dropped to $ 3,596 on BitMEX.
Historical data shows that when the index hits a new high, BTC tends to pull back. But the way market sentiment is measured is highly subjective. For example, 30% of the index is made up of social networks and surveys, which are non-quantifiable data.
In a prolonged bull market, cryptocurrencies may remain overheated for an extended period, as seen in 2018 and 2019. As an example, Bitcoin’s price rose to $ 14,000 in June 2019 before retreating.
Bitcoin faces strong resistance
Bitcoin price corrected from the $ 11,200 to $ 11,400 range three times in the last three days. The metrics suggesting that the Bitcoin rally has overheated are insufficient on their own. But when combined with a relevant market structure, the argument for a bearish scenario could be strengthened.
Historically, there has been mediocre resistance between $ 11,500 and $ 14,000. Therefore, the chances of sellers trying to defend the resistance range of $ 11,200 to $ 11,400 remain high.
When buyers break out of the strong resistance area, the probability of a bigger uptrend increases. Trader Michael van de Poppe explained that a break above $ 11,200 could trigger a rally to $ 11,700. He said:
“The crucial threshold is still the $ 11,200 level. Breaking and $ 11,500 – 11,700 is next! “
Rafael Schultze-Kraft, the technical director of Glassnode, raised a similar concern. Pointing to BTC’s historical price cycles, he said:
“‘We will never see BTC below $ 10,000 again,’ Episode 13. The last episode lasted a day.”
A possible Wyckoff formation and a head and shoulder pattern
Meanwhile, popular Bitcoin trader filbfilb suggests that BTC / USD may be forming a Wyckoff pattern, which generally results in a strong downtrend. Although the viability of the Wyckoff formation is questioned, when combined with other metrics, the probability of a distribution phase increases.
A possible Wyckoff pattern that forms on a lower Bitcoin time frame chart. Source: Filbfilb
A pseudonymous trader also noted that in the short term, BTC faces possible head and shoulder formation (H&S). In technical analysis, the H&S pattern is widely recognized as a signal for a market top. The merchant said:
“Does everyone talk about BTC going higher when it paints the cleanest H&S in its history?”
Bitcoin’s momentum appears to be on the buyers side as it repeatedly tests a key resistance level. In the short term, it faces strong resistance and two bearish patterns that could cause a bearish trend.
