BTC Price Analysis: Three Reasons Why Bitcoin Risks Dropping Below $90K

Bitcoin’s price, after nearing the long-anticipated $100,000 mark, has faced significant resistance. With prices retreating to $94,500, the cryptocurrency’s bullish momentum seems to be faltering. Market data, sentiment indicators, and technical analysis now suggest a possible correction that could push BTC below $90,000. Here’s an in-depth look at the three key reasons driving this outlook.

1. Options Market Reflects Growing Bearish Sentiment

The cryptocurrency options market is signaling caution, as traders are hedging against potential downside risks. One critical metric, the 25-Delta Risk Reversal (25RR), has turned negative for the first time in over a month. This suggests a shift in trader sentiment from bullish optimism to cautious pessimism.

• What is 25RR? The 25-delta risk reversal compares the implied volatility of out-of-the-money (OTM) call options to OTM puts. When this metric turns negative, it indicates that traders are paying a premium for puts (downside protection) rather than calls (upside bets).
• Current Market Activity: According to Amberdata, puts tied to BTC are now trading at higher premiums than calls. On the liquidity platform Paradigm, traders have increased their purchase of protective puts while selling call spreads, anticipating further declines.
• Impact on BTC Price: This hedging activity underscores trader fears of a continued pullback. The bearish bias in the options market aligns with Monday’s 5% BTC price decline and suggests that the rally has lost steam.

2. Weakening U.S. Demand: The Coinbase Premium Indicator

U.S. investor demand, a key driver of Bitcoin’s recent rally, is showing signs of weakening. This is evident from the negative shift in the Coinbase Premium Indicator, which measures the price difference between Bitcoin on U.S.-based Coinbase and offshore exchanges like Binance.

• Why It Matters: A positive Coinbase premium typically indicates strong buying interest from U.S. investors, who have been instrumental in Bitcoin’s post-election surge from $70,000 to $99,500. The current negative premium suggests that demand in the U.S. market is tapering off.
• Order Book Trends: The negative premium coincides with a bearish order book skew, which shows sellers gaining dominance over buyers. This imbalance further indicates vulnerability to negative market events.

3. Technical Warning: Bearish RSI Divergence

Bitcoin’s daily chart reveals a bearish divergence in the Relative Strength Index (RSI), a widely used momentum oscillator. This divergence occurs when price movements are not supported by corresponding momentum, signaling potential weakness in the trend.

• RSI Divergence Explained: While BTC reached a new high of $99,000 last Friday, the RSI failed to make a corresponding high. This mismatch suggests that the bullish momentum driving BTC’s rally has diminished.
• Historical Significance: RSI divergences often precede price corrections, as they indicate that buyers are losing control of the market. In Bitcoin’s case, the divergence aligns with other bearish indicators, strengthening the case for a near-term pullback.

The Bigger Picture: Liquidity and Market Depth

One additional factor contributing to Bitcoin’s vulnerability is the decline in overall market liquidity. Despite an increase in trading volumes, the market’s ability to absorb large trades without significant price fluctuations has weakened.

• Why Liquidity Matters: A liquid market ensures stability, as large buy or sell orders have minimal impact on price. Bitcoin’s current drop in liquidity means that even relatively small trades could cause outsized price swings.
• Potential Outcomes: The lack of liquidity heightens the risk of volatile moves, both upward and downward. If Bitcoin faces additional selling pressure, the resulting correction could be swift and severe.

Support Levels to Watch

Despite the bearish signals, Bitcoin still has key support zones that could act as temporary floors:

• Short-Term Support: Intraday charts indicate a support range between $87,000 and $88,000. A dip to this level might attract buyers looking for discounted prices.
• Long-Term Outlook: While the current technical and market indicators suggest short-term weakness, Bitcoin’s long-term fundamentals remain robust. Institutional adoption, favorable macroeconomic trends, and growing interest in BTC as a store of value continue to underpin its bullish trajectory.

Conclusion

Bitcoin’s retreat from $99,000 highlights its current fragility as it approaches the psychological milestone of $100,000. Bearish sentiment in the options market, weakening U.S. demand, and a bearish RSI divergence point to the likelihood of further downside. Coupled with declining liquidity, BTC could experience heightened volatility, potentially dropping below $90,000. However, long-term prospects remain optimistic, suggesting that any correction could provide a strategic buying opportunity for traders and investors alike.