Bitcoin's Rebound Hides Structural Weakness: Will Price Drop to $56,000?

Bitcoin's recent rebound has been a welcome relief after weeks of weakness, but it may be hiding a structural weakness that could lead to a deeper correction.

The cryptocurrency's 8-hour chart shows a head-and-shoulders pattern, a bearish reversal structure that forms when price creates three peaks with the middle peak higher than the others. This signals weakening buying strength and increasing selling pressure.

Additionally, Bitcoin has formed a hidden bearish divergence between February 6 and February 20, where the price created a lower high but the Relative Strength Index (RSI) formed a higher high. RSI measures buying and selling momentum on a scale from 0 to 100, and when it rises while price fails to rise equally, it shows that buying strength is weakening.

The biggest risk now comes from Bitcoin's on-chain cost basis levels. Data from the UTXO Realized Price Distribution (URPD) shows that the largest supply cluster sits at above $66,800, holding 3.17% of Bitcoin's total circulating supply. Another major cluster sits at $65,636, holding an additional 1.38% of supply.

These levels are important because they represent prices at which many investors bought Bitcoin. If Bitcoin falls below these levels, holders may begin selling to avoid losses, accelerating the price decline quickly.

Rising leverage and weak institutional support also create a weak recovery case for Bitcoin. Derivatives data shows rising liquidation risk as Bitcoin rebounded, with open interest increasing from $19.54 billion on February 19 to about $20.71 billion now. This means more traders have entered leveraged positions during the recovery.

Institutional sentiment also remains weak, with spot Bitcoin ETFs recording five consecutive weeks of net outflows. This reduces support during price declines and may limit recovery attempts.