Those Bitcoin bulls who were prematurely targeting the $9,200 level might be in for a rude awakening.
According to trader Scott Melker, Bitcoin faced a severe rejection at the 61.8 percent Fibonacci retracement level, which might indicate that $9,000 was the top of the recent rally.
This is the “bear case.” Price tapped the 61.8% Fibonacci retracement level of the entire move down from the $10,600 high to the $6,400 low. The 61.8 Fib has been powerful in previous Bitcoin moves. Analysis, not opinion. pic.twitter.com/M5LPwANvOw
— The Wolf Of All Streets (@scottmelker) January 17, 2020
Fibonacci retracement levels 101
12th-century mathematician Leonardo Fibonacci came up with the sequence of numbers that is supposed to define everything that we know in nature: from the galaxy to tree branches. His theory is also widely applied to different financial markets.
Fibonacci retracement levels are used as a popular trading indicator even though many traders remain skeptical of whether they actually work. One has to divide a vertical line by the major Fibonacci ratios to determine possible horizontal support and resistance levels.
The 61.8 percent retracement level, which is known as “the golden ratio,” has been historically important for Bitcoin’s price action.
Another fake pump?
Melker points to the fact that the Bitcoin price also tapped the 61.8% retracement level on Oct. 25 after when Bitcoin price pumped by about 40 percent on the news about Beijing endorsing Blockchain.
After a small period of euphoria, complacent bulls had to face a harsh reality, with Bitcoin shedding all of its gains in about a month and hitting the $6,400 low in December.
Whether you believe in Fibonacci retracement levels or not, this certainly gives the bulls a lot of food for thought.