Bitcoin rebounds despite 'COVID-20' fears — But is the correction now over?

Bitcoin (BTC) price has been on a tear in recent months, leading to a new all-time high at $24,200. However, BTC saw a correction on Dec. 21 as the equity markets also opened in the red. Bitcoin’s price dropped by 6% on Monday, while the U.S. dollar currency index (DXY) saw a strong bounce.

Such drops and uncertainty appear to be due to the reported emergence of a mutated coronavirus strain in the United Kingdom and, therefore, more restrictions on the horizon, which could have a big impact on the markets, as seen in March.

Bearish divergence playing out for Bitcoin

On the 4-hour chart, a bearish divergence shows the breakdown from $24,000 to Monday's lows of $22,000.

However, zooming out, this is still significantly higher than Bitcoin’s price three months ago, while such corrections are very common in both bull and bear markets.

Therefore, such dips shouldn’t catch experienced traders by surprise. In that regard, the levels to watch are shown in the chart above. But for the bearish divergence to confirm, Bitcoin’s price should reject the previous area of resistance.

If that rejects at $23,400 to $23,600, more downside is on the table and the higher time frame levels will be tested as support. However, if this $23,400–$23,600 region breaks to the upside, a new all-time high before the year's end is likely.

$18,500 is crucial

The only level to watch for Bitcoin at this point is the area around $18,500. This weekly level has many confluences around the previous all-time high and is the last region of consolidation.

On the daily time frame, the recent higher low is found at $17,500. In other words, Bitcoin’s price has to sustain above this level on the daily time frame to remain bullish.

Interestingly enough, based on the weekly chart, a drop toward $12,000 would still give a bullish outlook to the chart. However, such a correction would be significantly larger than any standard 20% to 40% bull market correction. But even such a severe 50% drop would not necessarily break the bull market cycle and would present a great "buy the dip" opportunity.

Markets reeling from DXY bounce

The DXY index is seeing a slight bounce at the beginning of this week, fueled by the previously mentioned market uncertainty.

Since investors tend to seek safety in times of crisis and uncertainty, such an event could push the DXY index even higher in the short term. This was seen during the March crash, after which the unprecedented balance sheet expansion by the Federal Reserved marked the DXY top.

Total market cap looking to retest $550 billion

The total market capitalization of cryptocurrencies has been rejected at the all-time high region, which means that a correction could be on the horizon.

Frequently, the total-market-cap chart shows a better view of the market's state than Bitcoin alone. Thus, a correction to $550 billion would put Bitcoin in the $18,500 region, the crucial short-term support zone that must be held to avoid any more downside.

Altcoins may benefit, in particular, at the beginning of 2021if Bitcoin’s price can sustain above $18,500 and start consolidating from there. Until then, coronavirus fears and uncertainty will likely continue to hamper the markets.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.