Analysis: Three Reasons Why Bitcoin Price Faces Major Resistance at $20,000

Bitcoin price hit $19,469 for the first time since December 2017, but there are some key factors that could prevent Bitcoin from setting new all-time highs. There are three potential reasons why Bitcoin is facing resistance at $20,000: a bull trap, overhead resistance, and an overcrowded derivatives market.

Potential Bull Trap

A cryptocurrency trader known as “Bitcoin Jack” called Bitcoin at its bottom in March, suggesting a potential bull trap.

A "bull trap" refers to a technical pattern in which late buyers or long-term holders get trapped as an asset's price falls.

Regarding Bitcoin Jack’s potential price trend prediction, a trader named “NekoZ” emphasized that such a trend is possible. He wrote:

“It’s scary to see the price drop to 12,000 because my prediction for a correction was between 16,000 and 18,000”

$20,000 is a major resistance level for Bitcoin

If Bitcoin surpasses $20,000, it will look for a new price ceiling.

In theory, Bitcoin could reach the various targets that many industry executives and analysts have shared over the past year. For now, most forecasts for a new price cap range between $25,000 and $100,000.

Funding rates for Bitcoin perpetual swap contracts on major cryptocurrency exchanges range between 0.05% and 0.1%.

Considering that funding rates are very high, short sellers may be eager to short sell below the $20,000 area.

Active OTC Markets Are a Variable

Still, on-chain data shows that the OTC market remains active. This typically indicates that whales, high-net-worth investors and institutions may be buying Bitcoin.

Ki Young Ju, CEO of CryptoQuant, said:

“The OTC market is still active, Bitcoin funding rate hit a three-year low a few days ago, and only 3% of transactions are for exchange deposits or withdrawals on the network. There may be a pullback, but I think it will eventually break through $20,000.”