In the past week, there has been a significant sell-off across the crypto markets and Bitcoin ended up losing more than 10% of its value. As far as other cryptocurrencies are concerned, they have also been showing weakness, particularly Ether (ETH), which suffered a 30% loss in value. Apart from that, the Nasdaq seems to have had a red week and the equity and the commodity markets have also slipped down significantly. Right now, the next step for the markets would be to find a bottom structure. As per the daily chart, it seems that Bitcoin has currently reached the previous resistance zone of $10,000.
This resistance area was established in May during the sideways action that happened after the Bitcoin halving. It is clear that Bitcoin lost its previous range support of $11,000, after which the cryptocurrency decided to take part in the competition of nosediving. However, the chart shows that it was not unreasonable to expect such a huge decline in price. If you take a look between $10,000 and $11,000, you will come to see that there is a lack of clear area of support. Hence, it is not completely unexpected for it to break down and move towards the previous resistance zone of $10,000.
According to the CME chart, there is still an open gap that can be found between $9,600 and $9,900. Such gaps are filled often, but it is plausible that $9,600 is where we may find the bottom. But, the chart also shows that a potential new CME gap could be formed if Bitcoin shows any weakness over the weekend. On Friday evening, Bitcoin’s price had closed at a value of $10,625 with the CME futures. Thus, a new CME gap would form if the price of Bitcoin opens at less than $10,625 on Sunday evening.
In simple terms, this potential gap could result in a relief rally in an upward direction. For now, there is a possibility of a potential short-term bottom, which could result in a relief rally. However, it remains up for debate whether this will be the final bottom that this crypto will reach for this recent correction. It is possible to come up with a couple of scenarios from the current chart. One scenario anticipates a potential filling of the gap in CME bitcoin futures. As per this scenario, it would lead to a potential bottom formation around the gap after which there will be a short-term reversal due to a bullish divergence.
The support around $9,600 is a crucial pivot because a bounce will occur off the gap for reclaiming the $10,000 area. If that scenario happens, then the CME gap will be closed and the market would have formed a bottom where this correction is concerned. After the CME gap is closed and $10,000 is reclaimed, then there are greater chances of a retest of higher levels than a further downward correction. Overall, the market appears to be quite shaky and investors need to be cautious when they are entering trades.