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The 50-week simple moving average had previously provided tremendous support for Bitcoin’s long-term bullish bias, but bears snatched it during the June 19 sell-off.
Bitcoin (BTC) prices have broken below a long-standing support wave that was critical in maintaining the crypto market’s strong bullish bias following the March 2020 fall.
The wave, known as the 50-week simple moving average, or 50-week SMA, indicates the average price traders paid for Bitcoin during the previous 50 weeks. Its invalidation as a price floor has pushed the Bitcoin market into severe bearish cycles throughout the years, culminating in 2020.
For instance, the 50-week SMA acted as support during the 2018 bear market. The wave helped prevent Bitcoin from undergoing deeper downtrends — between February 2018 and May 2018 — as its price corrected from the then-record high of $20,000.
Similarly, the wave provided Bitcoin with incredible support during its correction from its $15,000 high in 2019. Moreover, it held well as a price floor until March 2020, when the arrival of the COVID-19 pandemic caused a global market crash.
Fractal targets $12,000 to $13,0
Pseudonymous chartist “Bitcoin Master” shared concerns about Bitcoin’s potential to undergo an 80% average price decline upon breaking bearish on its 50-day SMA. The analyst noted that if the said fractal plays out, BTC/USD exchange rates could crash to as low as $13,000.
#Bitcoin just tagged the 50-week simple moving average, let’s see if the coin doesn’t break tradition of bouncing at least 50% ($47k) from it before making the usual 80% decline ($13k) from ATH.
— Bitcoin Master (@drei4u) July 14, 2021
#bitcoin dropping after the weekly candle opened below the structure I’ve been watching for a few weeks now.
I expect a bounce between $24k – $29k largely due to the CME gap at $24615.
After that, my guess at a bear market bottom would be $12k give or take $2k either side. pic.twitter.com/aMi2M45bmf
— Keith Wareing (@officiallykeith) July 19, 2021
Meanwhile, Bloomberg Intelligence’s senior commodity strategist, Mike McGlone, also highlighted the 50-week SMA in a tweet earlier in July, albeit recalling the wave’s ability to withhold selling pressure. The analyst recommended that investors should not dump their Bitcoin holdings right away on initial dips below the wave.
“Selling Bitcoin on initial dips below its 50-week moving average in the past has proven a good way to lose money, even in bear markets,” McGlone explained.
Bitcoin market analysts have mixed thoughts
The latest Bitcoin dip came in the wake of a global risk-on market decline driven by fears that the highly transmissible Delta variant of COVID-19 would slow down the recovery generated by the reopening of economies.
Vijay Ayyar, head of business development at cryptocurrency exchange Luno, noted that Bitcoin could drop further. In comments to Bloomberg, the former Google executive said the BTC/USD exchange rates could fall to as low as $20,000. Nonetheless, he anticipated the pair to retest $40,000 on the next bounce.
“We’re going to need to form another base first before resuming another bull trend,” Ayyar noted.
“We are going to be ranging between $20,000 and $40,000 for the rest of the year.”
Jehan Chu, the founder of cryptocurrency-focused venture capital and trading firm Kenetic Capital, placed a safe downside target near $25,000 but warned about accelerated sell-offs should bulls fail to log a rebound from the level. He said:
“Q1′s crypto market momentum has stalled and is threatening further reversal potentially below the $25K levels.”
Strong fundamentals and bullish signals remain
However, another analyst offered a different, more optimistic perspective on the current position of Bitcoin.
James Wo, founder CEO of the global crypto investment firm Digital Finance Group, highlighted on-chain indicators, including an ongoing decline in exchange inflows and active wallet addresses, as a reason to stay bullish on Bitcoin.
“Looking at these on-chain indicators, we can say that the majority of investors are waiting for major signals to enter the market again,” Wo said.
The cryptocurrency’s market-value-to-realized-value (MVRV) ratio, according to CryptoQuant, a South Korean blockchain analytics firm, also presented a positive scenario for Bitcoin.
The MVRV ratio is the market capitalisation divided by the realised capitalisation of an asset.
Traders may view Bitcoin’s price as overvalued if the amount is too high, signalling selling pressure. When the MVRV value is excessively low, on the other side, traders may perceive Bitcoin prices as undervalued, signalling purchasing pressure.
“Buying [Bitcoin] at this same level in the past cycle was seen between January to March 2017,” noted one of the CryptoQuant analysts, adding:
“It does not sell at the bottom but prepares ammunition for the bottom. Short-term data offer the probability of test at support, good exposure opportunity.”