Bitcoin (BTC) could be set for an imminent retracement as the uptrend that had its origins in March’s “Black Thursday” crash now looks to be running out of steam. 

Singapore-based QCP Capital warned its Telegram subscribers Wednesday that bitcoin was showing signs of “lethargy” as it struggled to capture any new highs. Bitcoin fell below the key $12,000 milestone on Tuesday, pouring cold water on hopes earlier this week for a major bullish breakout.

Daily chart

Bitcoin jumped above $12,400 on Monday, confirming an ascending triangle breakout and signaling a continuation of the rally from the July lows of sub-$9,000. 

But the breakout failed to invite stronger buying pressure and prices fell below $12,000 on Tuesday, invalidating the bullish setup. Chart analysts consider a failed breakout as a sign of bullish exhaustion – a slowing of price gains usually coupled with weakening buying pressure.

“Monday’s breakout of $12,000 was almost entirely short-squeeze driven, and the resultant failure just ahead of larger offers [sell orders] at $12,500 has solidified the price range of $12,000-$12,500 as a key resistance area for an extended period,” QCP Capital said.

Bitcoin may have a tough time establishing a foothold above $12,500 in the near term, as bullish positioning in the market is starting to look overstretched, QCP Capital said.  

Open interest in bitcoin futures on major exchanges rose to record highs of just under $6 billion on Monday, up 200% from the March low of $1.93 billion, according to data source Skew. 

Such bloated bullish positioning often leads to deeper price pullbacks – more so, in cases where it’s accompanied by overbought readings on technical indicators. That seems to be the case as the weekly chart relative strength index has crossed above 70, a sign the rally may be overdone.

Chris Thomas, head of digital assets at Swissquote Bank, also thinks the rally in both BTC and DeFi-related coins has gone too far. “It’s natural that we are seeing profit-taking and weak buying at higher levels,” Thomas said in a LinkedIn chat.

Bitcoin is trading near $11,800 at press time, representing a 3.4% drop on a 24-hour basis, according to CoinDesk’s Bitcoin Price Index. The cryptocurrency is feeling the pull of gravity after failing to keep gains above $12,000 for the second time in three weeks and may suffer a bigger drop if support near $11,600 is breached.

“On the short-term charts, we see $11,600-$11,700 level as the new key short-term pivot to watch, failing which we will likely get our anticipated retest of $11,000,” QCP Capital noted. That said, the broader outlook will remain bullish, as long as prices are held above the former resistance-turned-support of $10,500 – originally the February high. 

A sell-off below that key support looks unlikely as inflation expectations in the U.S. are rising as rumors abound that the Federal Reserve may soon signal tolerance for higher inflation – meaning the central bank would keep interest rates low even if inflation rises above 2% target.

It’s probably no coincidence that bitcoin’s correlation with gold – the classic inflation hedge – has started to strengthen in recent weeks.