The price of Bitcoin (BTC) rapidly fell after surpassing $11,500 on Binance between Oct. 14 and Oct. 15. Within two hours, it fell to $11,280, recording a 2.3% drop. After the fall, analysts are expecting another minor pullback in the near term.
Three factors likely caused the rejection to occur include a sell-off on BitMEX, a major resistance level and the stock market pullback.
Bitcoin dropped as soon as the Dow Jones slumped
On Oct. 14, the Dow Jones Industrial Average (DJIA) dropped by 0.58%, after initially seeing a minor upsurge.
As the trend of the U.S. stock market trend started to shift, Bitcoin recorded a sharp decline. Within 15 minutes, BTC saw a 1.15% drop from $11,518 to $11,370.
According to the data from Skew, the correlation between Bitcoin and the S&P 500 has increased in recent weeks. In contrast, the realized correlation between BTC and gold has declined considerably in the last three weeks.
Bitcoin correlation vs. S&P 500, gold, VIX, USD. Source: Digital Assets Data, Cointelegraph Markets
The data suggests that Bitcoin is currently perceived more as a risk-on asset over a safe-haven asset. Whether that leaves BTC vulnerable for a pullback amidst a stock market downturn in the fourth quarter remains to be seen after a strong Q3.
BitMEX sell-off
Some on-chain analysts spotted a spike in selling pressure coming from BitMEX, with major market shorts coming through. Before the initial drop from $11,540 to $11,280 occurred, many multi-million dollar short contracts appeared on BitMEX.
Consequently, the open interest of BitMEX rose from around $397 million to $414 million, when the price drop happened.
The $11,500 level has become a resistance area
The repeated rejection from the $11,500 area has turned it into a technical resistance level in the short term.
Following the struggle of BTC to break above $11,500, traders have started to ponder the possibility of a drop below $10,900.
The 3-hour chart of Bitcoin with key support levels. Source: Michael van de Poppe
Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said the $11,300 support zone remains the most critical level. A drop below it could send BTC to $10,600, Poppe said, explaining:
“The view remains the same. Holding here and the market might continue moving upwards. Losing this area and I’ll target $10,900 and $10,600 next.”
Still, the medium-term prospect of Bitcoin remains positive, buoyed by optimistic on-chain indicators. Researchers at Glassnode found that 14% of the BTC supply is held in accumulation addresses.
The rising number of investors holding onto Bitcoin, likely for a longer-term investment strategy, is a significant catalyst for BTC heading into 2021. The researchers said:
“Bitcoin accumulation has been on a constant upwards trend for months. 2.6M $BTC (14% of supply) are currently held in accumulation addresses. Accumulation addresses are defined as addresses that have at least 2 incoming txs and have never spent BTC.”
The confluence of repeated rejections from the same resistance level depicts a weakening short-term trend. But in the upcoming months, various on-chain data points suggest the likelihood of a strong market recovery.
