Bitcoin (BTC) prices broke below a long-standing support wave that was instrumental in keeping its strong bullish bias intact after March 2020's crypto market crash.
Dubbed the 50-week simple moving average, or 50-week SMA, the wave represents the average price traders have paid for Bitcoin over the past 50 weeks. Over the years, and in 2020, its invalidation as price floor has contributed to pushing the Bitcoin market into severe bearish cycles.
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 $13,000
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.
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 told Cointelegraph.
Data provided by CryptoQuant, a South Korea-based blockchain analytics firm, also provided a bullish setup for Bitcoin, citing the cryptocurrency's market-value-to-realized-value (MVRV) ratio.
In detail, the MVRV ratio represents an asset's market capitalization divided by realized capitalization. When the figure is too high, traders may interpret Bitcoin's price as being overvalued, thereby implying selling pressure. On the other hand, when the MVRV value is too low, traders may treat Bitcoin prices as undervalued, implying buying 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."
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