Cryptoverse – Hold Your Breath for the Bitcoin Bounce
(Our weekly analysis of the wild world of cryptocurrency)
If you’ve been waiting for a bitcoin recovery, you might have to sweat it for months. This is the conclusion of some technocrats looking for the method madly.
Bitcoin’s decline since May, fueled by economic anger, has propelled it below its 200-week moving average, at around $22,600, as well as its 200-day moving average, near $35,500.
It has been moving relatively sideways for over a month now, hovering near the 200-week moving average.
Valkyrie Investments, for one, says its research is pointing to an upward trend — but it’s unclear when. “Historically we have accumulated for three to six months (around the 200-week average),” said Josh Olszewicz, Valkyrie’s head of research, referring to the period of sideways trading before the price broke out.
Between the end of 2018 and the beginning of 2019, bitcoin spent almost three months breaking above the 200-week moving average.
However, in a gloomy scenario, bitcoin may not rally for nearly a year, Olszewicz said.
Moving averages smooth out wild price movements to clear the signal, or at least that’s the idea. Traders use long-dated averages to find the next support or resistance levels.
Yet chart analysis based on historical price patterns is far from an exact science, especially when it comes to the young, fast and furious history of crypto.
Some other technical indicators are indicating a wide range of potential support levels for bitcoin, ranging from $20,000 to $12,000 – suggesting that the world’s largest cryptocurrency could be headed for a fresh decline.
This week, bitcoin is hovering slightly above its 2017 peak, but is down more than 68% from its all-time high of $69,000 last November.
‘Four steps down, one up’
Some see a pattern in the recent bearish.
“The market is in a bear channel that started back in May,” said Eddie Tofpick, Head of Technical Analysis at ADM Investor Services International. “It looks like it’s in four step down and one step up mode at the moment.”
The Fibonacci retracement pattern, which aims to identify support and resistance levels, has given bitcoin a medium level of support between $19,500 and $20,000, said Patrick Reed, co-founder of FX consultancy The Adamis Principal.
Olszewicz points to $12,000 in Valkyrie as the next support bitcoin hasn’t touched in nearly two years.
In the absence of fundamental drivers, technical analysis has proven useful in identifying certain long-term trading patterns for cryptocurrencies such as bitcoin.
For example, a famous “death-cross” chart pattern on Dec. 10 portends a fall in bitcoin to come. In early January, the 200-day moving average proved to be a strong resistance.
Such methods also come with dangers, as proved this year when the stablecoin TeraUSD and its coupled token Luna and later the explosion of hedge fund Three Arrows Capital crashed all cryptocurrencies.
Spot trading of cryptocurrencies on major exchanges fell 27.5% to $1.41 trillion in June, the lowest level since December 2020, according to data from research firm CryptoCompare.
“Trust has come out of the market in a big way,” Reid said in the Admis theory.
(Reporting by Lisa Pauline Mattkal and Medha Singh in Bengaluru; Editing by Vidya Ranganathan and Praveen Char)
