Bitcoin has yet to recover from its unexplained weekend swoon, and now the investing public is on the lookout for the notoriously volatile token’s next move. Enter chart viewers.
Noting that “a chart is a chart is a chart,” Michael Purves of Tallbacken Capital Advisors sent a note Wednesday with technical analysis of the coin’s trading patterns. Bitcoin’s recent highs have not been confirmed by its relative strength index, among others, and its upward momentum is waning, he said.
“From a purely technical standpoint, the bullish case looks hotly contested here in the near term,” after its recent rally, wrote Purves, chief executive of the company.
This is another sign that Bitcoin has grown too big for Wall Street to ignore. With more companies allowing clients to dive into the asset and more institutional money tied to its performance, it’s no wonder that chart-watchers are capitulating and now lending their expertise to the growing body of analysis.
Previously, analysts at JPMorgan Chase & Co. have also rallied to their point of view. The last few times Nikolaos Panigirtzoglou witnessed such negative Bitcoin price action, buyers have come back in time to avoid deeper drops. This time, the strategist is worried.
If the largest cryptocurrency is unable to return above $ 60,000 soon, momentum signals will collapse, strategists led by Panigirtzoglou wrote in a note on Tuesday. It is likely that traders, including commodity trading advisers (CTAs) and crypto funds, are at least partly responsible for the build-up of long Bitcoin futures in recent weeks, as well as of the course of the last few days, they said.
“Over the past few days, the Bitcoin futures markets have experienced a steep selloff in the same way as they did in mid-February, mid-January, or late November,” the strategists said. . “The momentum signals will naturally decrease over the next several months, given their still high level.”
In these three previous cases, the overall momentum of the flow was strong enough to allow Bitcoin to quickly break through key thresholds, resulting in further position increases by momentum traders, JPMorgan noted.
“It remains to be seen if we see a repeat of these previous episodes in the current environment,” the strategists said. The likelihood of this happening again seems lower as the decay in momentum seems more advanced and therefore more difficult to reverse, they added. Flows to Bitcoin funds also appear to be low, they said.
Bitcoin rose to $ 64,870 during the time of Coinbase Global Inc.’s Nasdaq listing, but fell back to $ 55,000. The cryptocurrency is still up around 90% since the start of the year.
The coin, down five of the past six sessions, is struggling to break above its 50-day moving average around $ 56,819. For many chartists, this is a bearish indicator as it tends to determine the trends in price momentum. If Bitcoin was unable to cross its short-term trendline, it could drop and test the $ 50,000 level, which is around 10% lower from where it is currently trading. The next area of support would be its 100-day moving average around $ 49,212. That would mean an 11% pullback from Wednesday’s trading levels.
Tallbacken’s Purves, who says the coin’s breakout in 2017 and subsequent decline is a useful case study, also points to Bitcoin’s daily MACD signal – or the moving average convergence divergence gauge – which has turned bearish to medium. term. And its performance is still correlated with that of Cathie Wood’s hugely popular ARK Innovation ETF.
“Trading Bitcoin on the bullish side right now doesn’t seem to have a favorable risk-reward and if you’ve made a profit, this seems like a good time to miss it for now,” Purves wrote.
To be sure, he said, it’s hard to conclude how much further that could go down. The key to the problem will be the force with which institutional buyers intervene. “While the upward momentum clearly appears to be in question here, the level of downside risk that remains is inconclusive,” he wrote in a note. “It’s entirely possible that Bitcoin could just consolidate in a range for a while.”
Bitcoin fell 4.3% on Wednesday to $ 54,341 before recovering some losses. Smaller and alternative coins that had climbed in recent days also suffered declines on Wednesday, with Dogecoin – the poster child for crypto risk-taking – down around 15% to trade around 31 cents. That’s down from a high of 42 cents the day before, according to CoinMarketCap.com.