June 14, 2022
Cryptocurrencies: Weekly Update
Last Friday gave us a horrendous 8.6% year-over-year CPI, crushing equities and sending the cryptocurrency market into the weekend with a nasty downward trajectory. Bitcoin closed last Friday -3.4% at $29,060, which didn’t seem all too bad all things considered, especially when compared to the indices (SPY -2.9% & QQQ -2.7%).
Saturday showed us that cryptocurrencies had plenty more selling to do, with the most obvious indication being a close at $28,387 which was below Bitcoin’s previous 2022 closing low of $28,586 from 5/27.
Bitcoin sold off another -6.4% on Sunday and closed down another -15.4% on Monday to a new 2022 low of $21,920. Although it seems like we are out of real technical support levels for Bitcoin’s downside, there is still one historical indicator that may be very relevant… the 200-week moving average.
Bitcoin has always treated its 200-week moving average as its most key level for long-term support. However, BTC typically wicks between -18% to -30% below the 200-wma during cycle bottoms, meaning we still could see the coin’s price drop to as low as the $15,800 price range.
Depending on your personal sentiment regarding the crypto market, a -30% wick on Bitcoin’s weekly candle may offer an opportunity to lower your average cost if you’re holding a long-term BTC position.
The sentiment of the crypto market is relatively uncertain at the moment, with the recent selloff pushing Bitcoin’s price as well as its underlying momentum to some of its most extreme oversold levels ever according to the weekly RSI as well as our own RealMotion indicator.
Does this mean that we’ve already bottomed and the pain of the 2022 crypto market is over? Probably not.
Having only been created in 2009, Bitcoin really hasn’t had all that much time for a significant and long enough breakdown to truly stress test the 200-wma in different macroeconomic environments.
Now, with stagflation and global supply chain shortages not helping the situation, we will finally get to find out if the cryptocurrency market is gonna stick around, or if it really was just a bubble that got fed by stimulus and rapidly increased pandemic money supply.
It isn’t likely that Bitcoin’s price will freefall to the $15,800 area that we expect, and will have to be emphatically pushed below the $19,804 level which was the 2018 cycle top. On the other hand, Ethereum broke below its 2018 high without thinking twice and found its local support at its own 200-wma.
One interesting trend that changed in the past two days has been the breakdown in Bitcoin’s dominance of the overall market cap. 2022 has seen Bitcoin move from 39% to nearly 49% dominance, but Monday gave us the largest single-day breakdown of this metric of the entire year.
With BTC dominance down -3.54% on Monday, this is a clear indication that recent selling has been heavier in BTC than it has in altcoins. This isn’t all too surprising, as tons of crypto traders/investors already sold their more speculative altcoins in the wake of the LUNA crash in early May.
The last thing that we’re watching to try and identify a crypto bottom is Bitcoin’s peak-to-trough drawdown which is currently about 70% from the $69,000 all-time high.
Comparing the current drawdown from highs to the 2018 crash reinforces the idea that we’re not done going down, with a -84% peak-to-trough drawdown before the 2018 bear market finally bottomed.
To sum everything up, it doesn’t look like we’ve bottomed yet. The highest likelihood for a technical bounce based on Bitcoin’s historical performance would require that 18-30% wick below the 200-wma.
Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!