Bitcoin's slide since May, engulfed by economic distress, has brought it below its 200-week moving average, around one quotation of $ 22.600, and its 200-day moving average, around $ 35.500.
It has now been moving relatively sideways for more than a month, hovering close to the 200-week moving average. Valkyrie Investments, for example, says its research indicates an upward move, but that it is unclear when.
“We have historically accumulated (around the 200-week average) from three to six months,” said Josh Olszewicz, head of research at Valkyrie, referring to a period of side trading before a break to the upside in prices.
Between late 2018 and early 2019, bitcoin spent nearly three months straddling the 200-week moving average. In a darker scenario, however, bitcoin may not recover for about a year, Olszewicz added.
Moving averages smooth out wild price fluctuations to clean up the signal, or at least that's the idea. Traders use longer-term averages to spot next support or resistance levels.
However, chart analysis based on historical price models is far from being an exact science, particularly when it comes to the young, fast and furious history of cryptocurrencies.
Other technical indicators point to a wide range of potential support levels for bitcoin, ranging from $ 20.000 to $ 12.000, suggesting that the world's largest cryptocurrency could take another crash.
Bitcoin is traveling just above its 2017 peak this week, but is more than 68% below its all-time high of $ 69.000 reached last November.
Four steps down and one step up
Some see a pattern in the recent collapse. "The market is in a bearish channel that started in May," said Eddie Tofpik, head of technical analysis at ADM Investor Services International. "It appears to be in a four-step down and one step up mode at the moment."
Fibonacci retracement patterns, which aim to identify support and resistance levels, suggest that bitcoin has found a moderate level of support between $ 19.500 and $ 20.000, said Patrick Reid, co-founder of the FX consulting firm. Adamis Principle.
Valkyrie's Olszewicz points to $ 12.000, a level that bitcoin hasn't touched for nearly two years, as the next support. In the absence of fundamental factors, technical analysis has proved useful in identifying some long-term trading patterns for cryptocurrencies such as bitcoin.
For example, on December 10 a well-known "death cross" chart heralded the collapse of bitcoin that followed. At the beginning of January, the 200-day moving average proved to be a strong resistance.
These methods also come with dangers, as was demonstrated this year when the implosion of the stablecoin TerraUSD and its matching token Luna and later the hedge fund Three Arrows Capital caused all cryptocurrencies to collapse.
Spot cryptocurrency trading on major exchanges plummeted 27,5% in June to $ 1,41 trillion, the lowest level since December 2020, according to data from research firm CryptoCompare.
"Trust has gone out of business massively," said Adamis Principle's Reid.