If you’re waiting for a bitcoin recovery, you may have to sweat it out for months. That is the conclusion of some technical specialists who are looking for a method out of madness. Bitcoin’s decline since May, engulfed by economic fears, has knocked it below the 200-week moving average, at about $22,600 (about Rs. 18,05,800), as well as the 200-day moving average at around $35,500 (about Rs. 26, 76,700). It has been moving relatively sideways for over a month now, hovering close to the 200-week moving average.
Valkyrie Investments, for example, says its research points to an upward movement, but it’s not clear when.
“Historically, we’ve gathered for three to six months (around the 200-week average),” said Josh Olszewicz, Valkyrie’s chief research officer, referring to a period of sideways trading before the price moved up.
Between late 2018 and early 2019, bitcoin spent nearly three months on the 200-week moving average.
In a bleaker scenario, however, bitcoin may not rise for about a year, Olszewicz added.
Moving averages smooth out wild price swings to clean up the signal, or at least that’s the idea. Traders use longer-dated averages to find the following support or resistance levels.
Still, chart analysis based on historical price patterns is far from an exact science, especially when it comes to crypto’s young, fast-paced and furious history.
Some other technical indicators point to a wide range of potential support levels for bitcoin, ranging from $20,000 (approximately Rs. 16 lakh) to $12,000 (approximately Rs. 9,58,900) – suggesting the world’s largest cryptocurrency could plunge again .
This week, bitcoin crosses just above its 2017 peak, but is more than 68 percent below its all-time high of $69,000 (about Rs. 55,13,300) reached last November.
‘FOUR STEPS DOWN, ONE UP’
Some see a pattern in the recent malaise.
“The market is in a bear channel that started in May,” said Eddie Tofpik, chief of technical analysis at ADM Investor Services International. “Looks like it’s currently in a four step down and one step up mode.”
Fibonacci retracement patterns, which aim to identify support and resistance levels, suggest that bitcoin has found a moderate support level between $19,500 (approximately Rs. 15,58,200) and $20,000 (approximately Rs. 16 lakh), said Patrick Reid, co-founder of FX consultancy the Adamis Principle.
Olszewicz on Valkyrie points to $12,000 (about Rs. 9,58,900), a level bitcoin has not reached in nearly two years, as the next support.
In the absence of fundamental drivers, technical analysis has proven useful in identifying some longer-term trading patterns for cryptocurrencies such as bitcoin.
For example, a well-known “death-cross” chart pattern on Dec. 10 foreshadowed the bitcoin plunge that followed. In early January, the 200-day moving average proved strong resistance.
Such methods also carry dangers, as proved this year when the implosion of stablecoin TerraUSD and its paired token Luna and then hedge fund Three Arrows Capital caused crashes in all cryptocurrencies.
Spot trading of cryptocurrencies on major exchanges fell 27.5 percent to $1.41 trillion (about Rs. 1,12,64,600 crore) in June, the lowest level since December 2020, according to data from research firm CryptoCompare.
“Trust has come off the market in a big way,” says Reid of Adamis Principle.
© Thomson Reuters 2022