Bitcoin back at $79K after $81K rejection: why did the rally hit a wall?

Bitcoin slipped back towards $79,000 on Wednesday after its explosive rebound ran into resistance above $81,000, giving traders a serious test of whether the recovery has enough genuine buying behind it.

The cryptocurrency reached an intraday high of $81,265 on Tuesday, its strongest level in three months, before retreating.

Bitcoin has still gained about 24% since August 17, but the rejection came after a rapid move fuelled partly by forced short covering.

Sellers finally found resistance worth defending

Bitcoin’s Tuesday peak landed almost directly against its 50-week moving average, which is around $81,085. The May swing high around $82,800 adds another layer of resistance just above the market.

After a 24% rally in a little more than a week, that zone offered traders an obvious place to lock in gains.

FOREX.com market analyst David Scutt also warned on Wednesday that repeated failed breakouts were becoming difficult to dismiss.

“At some point, repeated failures stop looking like bad luck,” Scutt wrote for FOREX.com.

He highlighted overbought daily momentum, emerging bearish divergence in the relative-strength index and a bearish crossover in the four-hour MACD.

That does not mean Bitcoin suddenly lost the macro catalysts behind its rebound. Rather, the cryptocurrency reached an important technical area after momentum had become stretched and unrealised profits had risen sharply.

For bulls, clearing the $81,000-$83,000 zone now matters more than another brief intraday move above $80,000.

Short-squeeze fuel cannot keep repeating

The bigger question concerns what powered Bitcoin into that resistance.

Charles Schwab head of crypto research Jim Ferraioli told CoinDesk that about $6.4 billion of leveraged short perpetual positions had been liquidated during the rally.

“Ultimately, short squeezes tend to be short-lived,” Ferraioli said.

Those liquidations force bearish traders to buy Bitcoin to close positions, accelerating gains. However, once those positions are cleared, the same source of automatic demand largely disappears.

Bitget Research chief analyst Ryan Lee told CoinDesk that “the durability of the rally now depends on whether institutional buying continues after forced liquidations have cleared.”

Lee said Bitcoin could consolidate between roughly $74,000 and $81,000, while a retreat towards $75,000-$76,000 would still resemble ordinary profit-taking after such a rapid advance.

ETF demand keeps the bullish case alive

There is evidence that genuine capital is supporting the rebound.

US spot Bitcoin ETFs attracted $337.56 million on Aug. 24, extending their streak to six consecutive inflow sessions.

As per the SoSoValue data, said the six-day run brought more than $2.5 billion into the products.

That distinction matters because ETF purchases can continue after leveraged shorts have been flushed out.

CryptoQuant research head Julio Moreno also remains constructive.

He said “basically all metrics are pointing to the initial phase of a new bull market,” with the firm’s Bull Score jumping from 30 to 80 in one week.

But Moreno identified another hurdle. Bitcoin still needs to move above its 365-day moving average near $83,000 for stronger confirmation.

CryptoQuant also sees reasons for near-term caution. Unrealised profits are elevated and exchange inflows have increased, potentially creating additional selling pressure as holders take gains.