Bitcoin (BTC) bulls should brace for aggressive downside market corrections in the sessions ahead, especially as the benchmark cryptocurrency breaks below a critical support level.
Dubbed as the 20-week exponential moving average (20-WMA), the wave has historically served as a primary downside target for bulls to accumulate BTC. For instance, the BTC/USD exchange rate maintained its bullish bias all across 2020 while trading above the 20-WMA wave. It eventually closed the year up more than 400%.
Similarly, the 20-WMA wave supported massive bullish rallies in the April-June 2019 session. Meanwhile, the price floor overstayed its welcome in the 2015-2017 session as Bitcoin surged from $250 to $20,000.
Conversely, slipping below the 20-WMA wave brought havoc to the Bitcoin market. For instance, the January-December 2018 session logged a 72% decline after the BTC/USD rate slipped below the 20-WMA. It repeated the same pattern in the September 2019-March 2020 trading session; the pair fell by around 60% after breaking below the said wave support.
Negative fundamentals also fueled sell-offs in 2018, 2019 and 2020. In 2018, traders offloaded their bitcoin positions under the influence of initial coin offering scams. Meanwhile, in 2019, worries over Facebook’s Libra token launch, coupled with Bitcoin Cash (BCH) hard fork and its potential impact on the Bitcoin network, pulled prices lower.
In 2020, the coronavirus pandemic prompted a global market crash. In February, Bitcoin, which was sitting atop attractive rebound profits, became an ideal scapegoat for investors to withdraw their profits to cover their losses in other traditional markets.
The bearish case at present
Bitcoin’s break below the 20-WMA support this week appeared out of a flurry of panic-inducing events. First, Elon Musk, who had invested $1.5 billion in Bitcoin via his electric vehicle firm Tesla, reversed his decision to accept the cryptocurrency as payments, citing environmental concerns.
That thoroughly coincided with a breakdown in Bitcoin price. First, they fell from $55,000 to $50,000, and then to nearly $42,000.
The 20-WMA during the price declining period was near the $46,000-level. This week, BTC/USD crashed to a new sessional low of $30,000 on Coinbase.
The technical fractals alone suggest that the bitcoin price eyes an extended downside correction towards its 50-week simple moving average (the blue wave in the chart above). Part of the reason is the cryptocurrency’s tendency to test the 50-WMA wave for pullbacks.
The “Fractal 2” box in the chart above shows the same; Bitcoin maintained support above the blue wave before crashing below it in the wake of pandemic FUD. The “Fractal 1” box also showed the same.
Meanwhile, when even the 50-WMA did not hold up strong against bears, the prices crashed toward the 200-week simple moving average (200-WMA). At present, the 200-WMA sits near $12,800.
“If we see the low $30,000s soon, it will then be a question of will we see $10,000-$20,000,” also noted Clem Chambers, the chief executive of financial research outlet ADFVN.com.
“To me, that’s possible because when the ‘I bought at the top’ brigade stampedes for the exit, it will get extremely spicy,” he added.
Some bullish hopes for Bitcoin
Higher inflation remains one of the core bullish catalysts behind the yearlong Bitcoin price rally. It has soared by more than 300% in the previous 12 months, despite the recent downside correction, taking cues from the Federal Reserve’s aggressive quantitative easing policy that has lifted investment appeal off traditional safe-havens, including government bonds and the U.S. dollar.
Bitcoin bulls present it as a provably scarce asset, citing its limited supply cap of 21 million tokens. That has prompted veteran investors such as Stan Druckenmiller, Paul Tudor Jones, and Mike Novogratz to gain exposure in the cryptocurrency market.
Meanwhile, corporate houses other than Tesla, which includes Square and MicroStrategy, have added Bitcoin to their balance sheets as a measure against inflation. Institutional banking systems such as JPMorgan, Goldman Sachs, and Morgan Stanley have also announced Bitcoin-enabled investment services for their wealthy clients, pointing that they would b
Novogratz reminded on Tuesday Bitcoin is still trading about 32% higher on a year-to-date timeframe, telling CNBC that sometimes markets get ahead of themselves and correct lower to neutralize its overall sentiment. He added:
“Crypto and blockchain are still being adopted by institutions and retail traders alike, so there is no reason to worry.”
“We are seeing more and more institutions,” says @Novogratz. “I just see an inexorable move from financial institutions and tech companies into the #crypto space. Will it all be #bitcoin or #ethereum? I think #bitcoin will preserve its lane as a stored value.” pic.twitter.com/f2yJkfwTFZ
— Squawk Box (@SquawkCNBC) May 19, 2021
On Tuesday, Cathie Wood’s Ark Invest increased its crypto exposure by scooping up 118,214 shares of Coinbase (NASDAQ: COIN). a U.S.-based cryptocurrency exchange in a major portfolio reshuffle.