Bitcoin price risks losing ‘critical technical level’ as stocks under pressure

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U.S. stocks have started to correct as worries surrounding the pandemic are mounting. Meanwhile, theBitcoin (BTC) price has pulled back below $18,800 on Dec. 8 after struggling to break resistance at $19,500.

Bitcoin price risks losing ‘critical technical level’ as stocks under pressure
The daily price chart of Bitcoin (Coinbase). Source: TradingView

COVID-19 cases in the United States and Europe are continuously surging despite strict restrictions. Sweden, for instance, which has thus far relied on voluntary measures, has implemented a new set of restrictions.

Since Oct. 30, the Dow Jones Industrial Average increased by 13.46% within six weeks. Other major U.S. stock market indices, such as the S&P 500, similarly rose by around 13%.

Following a strong six-week rally, the calls for a stock market correction are emerging. Some technical indicators pinpoint an overheating equities market, which could negatively affect alternative assets like Bitcoin in the short term.

Macro uncertainty coincides with BTC chart technicals

Market analysts say that Bitcoin is currently battling a critical level that could dictate its short-term price direction.

Generally, analysts point toward the $19,500 to $19,600 range as the important resistance area in the foreseeable future. Above it, BTC has the potential to break through a new all-time high and continue the rally.

If Bitcoin convincingly breaks down below it, traders expect anywhere between $14,000 to $18,000 as the support range.

The timing of the growing uncertainty in the Bitcoin market is noteworthy because it coincides with an ambivalent U.S. stock market. 

For the past few weeks, U.S. stocks have rallied, buoying the sentiment for risk-on assets. But the recent pullback of the S&P 500 in the after-hours trading session indicates investors are turning cautious. Holger Zschaepitz, a market analyst at Welt, said:

“Global stocks under pressure as pandemic concerns outweigh stimulus hopes. S&P 500 Futures dip amid fears of restrictions as infections climb. Bonds held on to Mon’s gains w/US 10y yields at 0.93%. Dollar steady w/Euro at $1.2120. Gold trades higher at $1868. #Bitcoin at $19.1k.”

The primary source of fear and uncertainty stems from whether an additional monetary stimulus package is coming in the near term. Despite the optimism around vaccines, the second wave of lockdowns and economic restrictions in both the U.S. and Europe is putting pressure on market sentiment.

Bitcoin rolling 90-day returns correlations. Source: Digital Assets Data, Cointelegraph Markets

Bitcoin’s correlation with the S&P 500 and gold has been decreasing since October. Nevertheless, a drop in equity markets will likely also see a pullback in BTC and gold prices, at least initially, as was seen in March. 

Bitcoin price risks losing ‘critical technical level’ as stocks under pressure
Crypto Fear and Greed Index. Source: Digital Assets Data, Alternative.me

As Cointelegraph reported, another variable to consider is the lackluster volume in the Bitcoin market amid record levels of “extreme greed,” based on the Crypto Fear and Greed Index. The daily trading volume of BTC has been in a downtrend compared to previous weeks, which also demonstrates an elevated level of caution in the market.

JPMorgan’s optimistic viewpoint is a variable

Although the short-term sentiment around risk-on assets is dwindling, JPMorgan says the market is still in the middle of a bull trend.

According to Business Insider, JPMorgan strategists explained that the “long equities” trade is overcrowded and the possibility of a January correction exists. However, the strategists emphasized that any correction in the stock market would be an opportunity to buy. They said:

“Thus any equity correction in the near term would represent a buying opportunity as in our opinion we are only in the middle of the current bull market.”