Critical test for bitcoin as 200-week moving average looms

Nerve-wracking times for traders searching for the market bottom.
Image: Angel Navarrete/Bloomberg

The 200-week moving average is a key indicator watched by bitcoin (BTC) traders and it looks as if it is about to be breached.

The chart below shows BTC has touched the 200-week moving average three times since 2018, and each time has bounced off this critical support level. This price dropped from $28 100 to $22 400 this week, a 20% drop that appears to have been arrested at the 200-week moving average. It’s worth noting that this week’s drop has been on very thin volumes.

Read: Bitcoin rout hits ‘darkest’ phase with entire market underwater

A break below this level could see it plunge even further to $18 000 and even $14 000.

Bitcoin tests 200 week moving average

Source: TradingView

The 200-week moving average price is $21 527, and BTC has historically traded at 10 to 15 times this average. Were it to return to this range, this implies a price of $215 274 to $322 912.

According to Kraken Intelligence, BTC traded ata 5.8X multiple to the 200-week moving average before entering into a downtrend.

Another way of looking at BTC is to reflect prices on a logarithmic scale, which reflect percentage increases in price more realistically. In other words the jump from $50 000 to $100 000 is half the distance on the left-hand scale, and the same as the jump from $25 000 to $50 000. Both ‘jumps’ reflect a 100% increase in price, as shown in the chart below.

Bitcoin logarithmic chart

Source: Kraken Intelligence

The logarithmic chart shows the trending support line in black. That trend line has been surprisingly robust over the last decade, and has been breached only briefly in 2020, and again in the last week.

When considering previous bull market cycles, one will find that it takes, on average, 385 days for BTC to fall to the support band after topping out, says Kraken Intelligence.

“Also, one will find that BTC has corrected, on average, -86% after the bull market ends.

“By knowing where the price of the support curve is 385 days from today and making assumptions about how severe BTC will correct after hitting a cycle top, one can have a better sense of where BTC would need to be trading to correct down to the support band over 385 days.”

The most recent drop in price was prompted by crypto lending platform Celsius announcing on Monday that it was pausing all withdrawals, swaps, and transfers between accounts due to extreme market conditions. The pause was intended ‘to stabilise liquidity and operations while we take steps to preserve and protect assets.’

Read: Crypto lender Celsius stops withdrawals

After a month of terrible news for cryptos, there were a few nuggets of good news.

Bank of America recently surveyed 1,000 existing and potential users of digital-asset exchanges. Some 91% of respondents said they intended to buy crypto in the next six months, with 30% saying they do not plan to sell any of their crypto holdings in the next six months. That percentage was unchanged from the percentage who said they had not sold any crypto in the past six months.

Teeka Tiwari of Palm Beach Research Group argues that the biggest gains in crypto going forward will not come from Bitcoin, but from non-fungible tokens (NFTs). “It’s taken 12 years to reach 200 million bitcoin users. I believe the adoption rate of NFTs will be even faster than that.”

While cryptos have generally taken their lead from BTC, this time may be different, says Tiwari.

But for traders on the hunt for market bottom, these are going to be nerve-wracking times.

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COMMENTS   1

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If it breaks through $19,000, expect $17,500 and then it to hit $10,000. You could put in an order at $5,000. 😉

End of comments.

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