- Bitcoin risks dropping to $35,000 on account of a bear flag pattern.
The RSI's negative divergence adds weight to the bearish narrative.
Bitcoin will abandon the breakdown if the flag pattern fails to confirm and transforms into a channel.
Bitcoin price has engaged reverse gears after the bulls' inability to sustain the price above $50,000. The flagship cryptocurrency was rejected at $52,500, an area highlighted by the 50 Simple Moving Average (SMA) on the 4-hour chart. Simultaneously, the support above $50,000 was overwhelmed, leading to ongoing losses under $47,000.
The price action over the last couple of days has formed a bear flag pattern. As the name suggests, this is a bearish pattern that mainly leads to the previous downtrend's continuation. As the asset drops in value, support is established, followed by a recovery about halfway through the flagpole. The barrier at this level hinders further growth, paving the way for a retracement.
A break under the bear flag results in a massive breakdown equal to the length of the flagpole. In this case, Bitcoin is likely to fall by 23% to the support at $35,000 before recovery ensues.
The Relative Strength Index (RSI) brings to light a bearish divergence. This bearish pattern forms when the price forms a series of higher lows while the RSI creates a series of lower highs. It indicates that the bullish trend is getting exhausted amid the push by the bears to regain control. Besides, the RSI has not been able to break above the midline since the breakdown at the beginning of the week, hinting at an uphill battle to sustain the uptrend.
It is worth mention that the bearish outlook will be invalidated if the price remains in the confines of the bull flag. If the pattern fails to break midway through the flagpole, an ascending channel will come into the picture, discrediting the technical breakdown.
Bitcoin intraday levels
Spot rate: $47,000
Relative change: 325
Percentage change: 0.6%
Trend: Bearish
Volatility: Growing