Bitcoin faced a notable setback, dropping over 4% to $27,386 on Oct. 3, a day after reaching $28,590, its highest point in two months. Various factors played a role in this decline.
1. Surge in U.S. Bond Yields
Elevated U.S. 10-year Treasury note yields, hitting a sixteen-year high at 4.75% on Oct. 3, impacted Bitcoin negatively. The Federal Reserve’s stance on no interest rate cuts until 2023 and 2024 contributed to the surge, boosting the U.S. dollar against other major currencies. The strengthening dollar has historically been bearish for Bitcoin in 2023.
2. Overbought Correction
Bitcoin’s technical indicators signaled an overbought market, particularly the Relative Strength Index (RSI), which surpassed 70 on the 4-hour chart on Oct. 2. Such levels often precede corrections or consolidations, indicating a scarcity of buyers at higher price levels.
3. Long Liquidations Dominating Shorts
Long liquidations, totaling approximately $23 million in the last 24 hours, outpaced short liquidations (around $5 million). This imbalance in the derivatives market, combined with selling pressure in the spot markets, accelerated the decline.
4. Technical Analysis
A bearish reversal pattern, known as a rising wedge, emerged on the daily chart. This pattern typically resolves with a break below the lower trendline, leading to a decline equivalent to its maximum height. Bears might aim to pull the BTC price toward the wedge’s lower trendline at around $26,800, coinciding with the 0.236 Fibonacci line and the 50-day and 200-day exponential moving averages.
Whether Bitcoin bounces before or after testing the lower trendline could determine its trajectory. A successful rebound may see a test of the upper trendline near $28,400, aligned with the 0.5 Fibonacci line. Conversely, breaking below the lower trendline could signal a potential decline towards $24,000 in the coming months, about 12% below current levels.