Bitcoin’s price experienced a massive drop yesterday, fluctuating over 10% in 24 hours. While the cryptocurrency has yet to break below any significant support level, analyzing the root of this move and what it means for the market is essential.

Yesterday’s crash, albeit caused by a questionable report, provides some insightful data from a technical perspective.

Technical Analysis

By TradingRage

The Daily Chart

On the daily chart, it is evident that the price has been consistently making higher highs and lows for months, rising above $40K once more. The bullish trend has especially gained momentum since breaking back above the 200-day moving average. However, the price is now trading so far above the moving average, which is located around the $32K mark. This significant distance in itself is a sign of over-valuation for BTC.

Yesterday’s drop could be the beginning of a deeper pullback toward the 200-day moving average in the short term. Yet, for this pullback to materialize, the $40K level should be broken down first, or a bullish continuation will still be the case.

The 4-Hour Chart

The 4-hour chart paints a much more meaningful picture, giving clues about why yesterday’s drop occurred. After consolidating between the $40K and $45K levels for almost a month, BTC’s price finally broke the range to the upside earlier this week.

However, with the Relative Strength Index showing a clear overbought signal and a sudden drop afterward, the bullish move was clearly a fake breakout. Currently, the price is testing the short-term resistance level around the $43,300 mark. In case it fails to climb back above, a future drop toward the $40K level would be imminent. The fate of BTC’s short-term trend would then rely on the price’s reaction to the $40K area.

On-Chain Analysis<