Bitcoin could drop to the $20,000 range if a key price level is breached

• Bitcoin is testing a key support level that, if broken, could send the cryptocurrency back to the $20,000 range.
• That's according to Fairlead Strategies' Katie Stockton, who highlighted $25,200 as bitcoin's line in the sand.
• "We are wary of negative catalysts that could develop from a bigger retracement," she said.

Bitcoin decisively broke below its 200-day moving average last week, and the negative price action suggests there could be more downside ahead in the short term.

That's according to Fairlead Strategies' Katie Stockton, who said in a recent note that the $20,000 range for bitcoin could be back in play after it bounced strongly from those levels earlier this year.

Stockton is eyeing the $25,200 level as a key support level for bitcoin. If the cryptocurrency decisively breaks below that level, the next support range is at $20,600, representing potential downside of 21% from current levels. Bitcoin traded at $26,191 on Wednesday.

"As it stands, the weekly stochastics point lower amidst weak intermediate-term momentum, supporting a breach of $25,200 support," Stockton said. "We remain long-term neutral, but we are wary of negative catalysts that could develop from a bigger retracement."

Bitcoin has been a rollercoaster this year, as it doubled from about $16,000 to $32,000 between January and July, before falling back down to its current level.

That coincided with bond yields tumbling earlier in the year then spiking in recent months as the outlook on the Federal Reserve's monetary policy has shifted.

Most recently, bitcoin saw a swift decline from just under $30,000 to about $26,000 after a report said that SpaceX wrote off its bitcoin position and sold some or all of its position.

Investors have held out hope that the SEC is close to approving a spot future bitcoin ETF, as it evaluates applications from BlackRock and Fidelity, among others.

If those bitcoin ETFs ultimately get approved, some analysts like Fundstrat's Tom Lee expect a surge in demand for the cryptocurrency that results in bitcoin shooting above the $100,000 price level.

For now, there's no hint that the SEC will move forward with approval, and bitcoin remains in a precarious position if its technical support levels are not decisively held.