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In his latest work video On December 21, cryptocurrency analyst React Capital attempted to answer the question “What is the worst-case scenario for Bitcoin right now?” After reaching a new all-time high of $108,374 on December 17, Bitcoin’s price fell by more than -11%.
How far can the price of Bitcoin fall?
Rekt Capital puts the Bitcoin price decline in historical perspective, underscoring the historical importance of weeks 6, 7 and 8 in the “price discovery uptrend.” Drawing on previous cycles such as 2013, 2016-2017, and 2021, he explained that Bitcoin has a strong tendency to correct during these specific periods, with some declines reaching 34% or higher.
“Understanding these weeks is crucial because they tend to be problematic for Bitcoin,” Rekt Capital said, referring to previous cycles in which significant pullbacks occurred during this time frame. For example, in week 7 of the 2013 cycle, Bitcoin experienced a massive 75% decline over 13 weeks. Likewise, 2016-17 saw a 34% decline in week 8, confirming the recurring weakness during these specific weeks.
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As of the current session, Bitcoin has seen a 10%+ retracement, bringing its price to a historically critical support area at $96,537 on the weekly chart. Rekt Capital emphasized the importance of this support level, noting that “this historical support area enabled a move to $108,000.” He warned that failure to maintain this support could lead to a more serious correction all the way to $89,830.
Examining the price action of the past few days, Rekt Capital noted the appearance of a bearish engulfing candlestick on the weekly time frame – a technical indicator often associated with potential reversals. He pointed out that we are losing resistance that turned into support. This loss indicates a possible transition into a corrective period, as the price struggles to maintain its upward trajectory.
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Rekt Capital also noted the importance of maintaining the 5-week technical line in its analysis. “If we lose this 5-week technical uptrend and orange trend line, it will be increasing evidence that we may be moving into a corrective period,” he warned.
Furthermore, it addressed the CME gap between the $78,000 and $80,000 price levels, a critical area that remained unfilled. “Deepening the 26%, 27%, 28% declines could close the entire CME gap,” Rekt Capital noted.
Historically, CME gaps tend to be filled, while there are a few gaps that are never filled.
Despite all the warning signs, Rekt Capital maintains a long-term bullish stance, explaining that “it is these pullbacks that enable future uptrends in the parabolic phase of the cycle.” Drawing on previous cycles, I show how corrections have historically provided the market with a necessary “break.”
In the 2021 cycle, for example, Bitcoin saw a 16% decline in week six and an 8% decline in week eight, yet the overall trend continued to be upward. Likewise, the current 10% correction, although significant, could serve as a preparatory stage for the next phase of price discovery.
At press time, Bitcoin was trading at $95,000.
Featured image created with DALL.E, a chart from TradingView.com
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