Bitcoin bounced back above $37,000 Tuesday a day after plunging to its lowest level since July in a wild start to the week.
However, the cryptocurrency still lost almost half of its value from its all-time high in November, promoting some investors to question if the recovery is short-lived and will be followed by a further downtrend. Bitcoin BTCUSD, +0.36% is trading at around $36,542.
“I think we are going through a cyclical downturn. And this isn’t new,” David Duong, director of institutional research at Nasdaq-listed crypto exchange Coinbase COIN, -3.06%, said in a phone interview. “We’ve been going through this whole downturn, probably since Thanksgiving, and it’s been ongoing.”
“My own view is probably up through the end of Q1, conditions are still gonna be fairly challenging for risk assets, crypto included,” Duong said.
The recent uptick in bitcoin is a “technical bounce” as the daily relative strength indicator for bitcoin reached its most oversold level since the March 2020 crash, Clay Gardner, chief investment officer at investment management firm Titan, wrote to MarketWatch in an email.
However, the overall technical short-term trend for bitcoin still appears bearish, Gardner noted.
Many traders are waiting for the conclusion of the Federal Reserve’s two-day meeting on Wednesday afternoon, before making any aggressive moves. Though few expect the central bank to implement immediate policy changes, investors are looking for clues about the timing for the Fed to raise rates this year and shrink its balance sheets.
A balanced Fed would help calm markets, while a more hawkish Fed could stoke the sell-off further, according to Simon Peters, crypto analyst at eToro.
For now, “we think it’s a good time to nibble but not yet buy hand-over-first,” Gardner noted.
Below are the key levels that analysts are watching to look for a price bottom, if bitcoin’s price downturn continues.
200-week moving average
“Historically the bitcoin price bottoms out around the 200 week moving average,” eToro’s Peters told MarketWatch. “The last time the 200 weekly moving average was tested was following the March 2020 covid crash and price then rallied all the way to the then all-time high of $64K.”
The 200-weekly exponential moving average stands at around $25,000 on Tuesday, according to eToro data.
Paul Robinson, strategist at DailyFX told MarketWatch that he’s watching if bitcoin would break a support level of $28,600, a low that the cryptocurrency hit in June 2021. If bitcoin holds above the level, the cryptocurrency “could rally strongly higher and be in the process of creating a broad range dating back to the early part of 2021,” he wrote in an email.
However, if bitcoin breaks below the level, then it may “go through an extended bear market lasting quite some time,” Robinson noted.
Market Cap to Realized Value Ratio
Market Cap to Realized Value (MVRV), which refers to bitcoin’s current market cap to its market cap that values each coin at the price the last time it moved, is effective to indicate cyclical highs and lows, Greg Cipolaro, bitcoin company NYDIG’s global head of research and Ethan Kochav, research analyst, wrote in Tuesday notes.
The ratio currently stands at 1.5, while cycle lows usually occur when MVRV ratios are below 1.0, equating a bitcoin price of $24,000 based on Tuesday levels, Cipolaro and Kochav noted.