Bitcoin’s technicals are in rough shape after its spectacular tumble last week and a recovery might take months, according to Fundstrat Global Advisors.
The largest cryptocurrency is trading about 40% below its mid-February high, with a particularly notable drop between March 12 and 13, when it lost more than $3 000 in about 16 hours. Now it has broken below its 2015-2020 uptrend, leaving its price action “badly compromised,” according to technical strategist Rob Sluymer. This has all been happening as assets from stocks to bonds and currencies struggle to factor in the huge hit to global growth coming from the coronavirus.
“The crypto breakdown over the past week mirrored the ‘get me out of everything’ panic that dominated all asset classes, whether they were defensive (bonds and gold) or not (equities),” Sluymer wrote in a note Thursday. “Lower highs and lower lows are in place for Bitcoin, leaving in a compromised, potentially vulnerable longer-term profile.”
The picture isn’t all gloom and doom though, Sluymer said. Bitcoin has held above its 200-week average, which he sees as an important long-term structural support level for most asset classes, and one that worked for the cryptocurrency in both 2015 and 2018.
“For now, technically we will again give Bitcoin the benefit of the doubt that it is attempting to bottom but recognise Bitcoin will likely need months of consolidation to repair the technical damage now in place,” he said.
The price action has turned more positive this week, with the largest digital currency rebounding almost 15% to climb back above the $6 000 level.
“There was a lot of buying pressure sub-$5 000 as can be seen and clearly indicates seller exhaustion,” said Vijay Ayyar, Singapore-based head of business development at crypto exchange Luno. “These prices were potentially below running cost for many miners, and we’ve seen hash rates drop. Miners are also better off just buying Bitcoin at such prices so there could be that aspect as well.”
As the industry moves closer to the anticipated halvening — a scheduled reduction in the Bitcoin mining rate to combat inflation — Ayyar says prices could hit $6 500 again before finding a range between $3 000 and $6 000 until the next bull-cycle breakout.
“This is classic redistribution and would be very healthy for future Bitcoin price action and if we were to have bullish momentum going forward,” he said.
© 2020 Bloomberg