Bitcoin shows signs of exhaustion despite positive sentiment among investors

Market participants have grown overwhelmingly bullish about Bitcoin after the impressive bull rally it has enjoyed over the past few months. While the flagship cryptocurrency sits a few hundred dollars shy of its recent all-time high, multiple fundamental and technical factors warn of a potential correction on the horizon. 

Bitcoin investors grow “extremely greedy”

Bitcoin has stolen the crypto spotlight due to its upward price action. The pioneer cryptocurrency saw its price rise more than 80% since the beginning of October to recently hit a new yearly high of $19,440. The chatter around BTC is skyrocketing. 

Data from Santiment reveals that the number of BTC-related mentions across several social media networks has increased significantly. Bitcoin’s weighted social sentiment peaked at the highest positivity level it has been in since June. 

Such positive social engagement metrics seem to be a direct result of Bitcoin’s price action, which has managed to draw the attention from altcoins in the DeFi sector. However, historical data has shown that BTC tends to perform poorly when social perception is high, so the outcome could actually benefit those betting on a downside.

The positive sentiment around Bitcoin could spell trouble for its price action in the near-term future, especially now that market participants are “extremely greedy.” 

Technical analysis: A correction in the works

The Tom Demark (TD) Sequential indicator supports the thesis that Bitcoin is bound for a steep correction. This technical index presented sell signals in the form of green nine candlesticks on BTC’s 1-week and 3-day charts. The bearish formations forecast a one to four weekly candlesticks retracement before the uptrend resumes.  

A glimpse at the bellwether cryptocurrency’s weekly chart reveals that the TD setup has been incredibly accurate at anticipating local tops. The last two times this indicator presented a sell signal within this time frame, BTC dropped 16% and 15%, respectively. 

Now, similar price action may take place despite the historic moment in where Bitcoin sits. 

In the event of a correction, the most significant support level underneath Bitcoin lies at $11,400. But before prices can fall to this point, there are two other demand areas that this cryptocurrency must break. These support levels sit at $16,100 and $13,400, respectively.

On the flip side, the bearish outlook will be jeopardized by a daily candlestick close above December 2017’s high of $19,700. If the bulls manage to push prices above this supply wall, a further advance to $24,000 or even $30,000 will be almost guaranteed.

Time to wait on the sidelines

Given the pivotal point in which Bitcoin is sitting, it is imperative to implement a robust risk management strategy to avoid getting caught on the wrong side of the trend. Even though prices seem to be aiming for new all-time highs, many signals point to a correction in the near-term. Such ambiguity is a reason to be concerned. 

For instance, 30-40% corrections were the norm in the previous bull market. Now that a new bullish cycle seems to have begun, a steep retracement has yet to occur. As BTC appears to be approaching overbought territory, taking a note of caution is highly recommended.