The price of Bitcoin (BTC) dropped sharply after approaching $18,500 on Binance and Coinbase. The plunge took place as large sell orders were spotted on both spot and futures exchanges.
As Cointelegraph previously reported, traders anticipated a pullback as the price of BTC neared the $18,000 to $19,000 resistance zone. Upon its first retest of the area in nearly three years, the market saw a strong reaction.
Bitcoin confirms $18,500 as a key near-term resistance area
There are two main reasons why Bitcoin saw a swift drop near $18,500, and this caused other cryptocurrencies like Ether (ETH) to correct even harder.
First, the $18,500 level remains the biggest resistance level before a new all-time high above $20,000. Hence, it is a key area of interest for sellers to defend, as breaching $18,500 would raise the chances of a broader rally.
Second, an overwhelming majority of Bitcoin addresses are profitable as BTC tests an important resistance area. According to IntoTheBlock, 99% of BTC addresses are now in a state of profit. This raises the probability of a profit-taking-induced pullback.
Based on BTC’s recovery in the past two hours, there is a high probability that dips will be aggressively bought. Following the initial drop to $17,214 on Binance, Bitcoin immediately recovered above $17,600.
The hourly chart of Bitcoin shows that the 20-day moving average hovers at $17,586. As such, if BTC remains comfortably above that level, the likelihood of a prolonged recovery increases.
Dan Tapiero, co-founder of 10T Holdings, expressed confidence in Bitcoin’s medium-term outlook. He said that the “big boys” or the smart money would likely buy the dips. Referring to the weekly chart of Bitcoin, he wrote:
“Not often in life do you get to look at a chart like this one. Bitcoin to slice through highs imminently. 3rd wave up to dwarf the 2017 move and should persist for several years. Real fundamentals driving price unlike ’17 speccy/ico retail flow. Big boys will buy dips now.”
John Wick, a popular Bitcoin trader, echoed this sentiment. Wick said that Bitcoin is seeing some profit-taking, but it remains uncertain how long bears would be able to sustain the pressure. He said:
“Profit taking has started on BTC right now. Let’s see how far the bears can push this dip down before it’s bought back up.”
What happens next?
A pseudonymous trader known as “Bitcoin Jack” said the dominant cryptocurrency is reaching the “finale” of its short-term cycle. There is some upside left for Bitcoin following the recent pullback, but he notes that more longs or buyers could be trapped, which could make another drop likely.
The trader explained:
“We are right in the finale I think. Some upside left potentially to squeeze early shorters and bait more longs to trap. Then clap, bang goes the trap. We are eating shoarma for dinner.”
Considering that the hourly moving averages of Bitcoin held strongly after the dip, the chances of a recovery are higher than a larger drop.