Bitcoin falls below the critical value again - are more losses to come?

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Every time the price of bitcoin broke below the so-called moving averages, the market presented what some analysts call a “generational buying” opportunity. This means: BTC is threatened with a new crash.

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Bitcoin drops below the moving average

A moving average (GDA) is a stock indicator commonly used in technical analysis. As the name suggests, the indicator moves price data by creating a constantly updated average price over a certain period of time.

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In technical analysis, a moving average helps identify trend directions by analyzing previous price action.

Moving averages are widely used when analyzing the price of Bitcoin. Of all cryptocurrencies, Bitcoin itself is the most similar to stocks. He has responded well to such analyzes in the past.

Although technical analysis (TA) is still a controversial topic in the crypto industry, analysis of Bitcoin MAs can be used along with other metrics to determine the current state of the market.

In the context of Bitcoin, moving averages can be used to identify where support and resistance are forming. Looking back at historical data, moving averages allow us to identify periods when the price of bitcoin fell to its cycle lows.

Bitcoin: Buy the reset now?

When analyzing Bitcoin, the 60-, 120-, 200-, 360-, and 720-day moving averages are of particular importance. Every time the price of bitcoin fell below these moving averages, the market saw what some analysts are calling a “generational buying” opportunity.

Graph showing the top five daily moving averages for Bitcoin (Source: Glassnode)

According to data from Glassnode, Bitcoin has fallen below all major moving averages for the fifth time in its history. Bitcoin’s current stay below the moving averages is the longest ever. It is almost double the length of the previous declines we saw in late 2011, 2015, 2019 and 2020.

What is the Bitcoin Investors Tool?

Moving averages are part of other key indicators used to determine the Bitcoin market cycle. One of these indicators is the Bitcoin Investor Tool, developed by the analyst Philip Swift was developed.

The indicator, intended as a tool for long-term investors, consists of two simple moving averages of the price of Bitcoin – the 2-year MA and a 5x multiplier of the 2-year MA.

These moving averages are used as a basis for determining undervalued and overvalued market conditions. They indicate periods when prices are likely to be approaching cyclical highs and lows.

Bitcoin price trading below the 2 year MA has historically produced above average returns and signals have cycle bottoms. If the price trades above the 2-year x5 MA, it will indicate the top of a bull cycle and a zone where long-term investors are reducing risk.

Graphic of the Bitcoin Investor Tool (Source: Glassnode)

Bitcoin is still below the 730-day MA since Terra (LUNA) dropped in May. Since 2011, BTC has fallen below the 730-day MA only three times — between 2015 and 2016, in 2019, and briefly in 2020.

Each time BTC has been below the 730-day MA is shorter than the previous one. The fall of March 2020 was measured in days, not months. Bitcoin’s current stay below the MA has broken this pattern and is now entering its fourth straight month.

Bitcoin has recovered from all declines below the 730-day MA. If its historical patterns repeat, it will also recover from that decline.

However, it is still too early to say how fast this recovery will be. The current uncertainty in the crypto market is being exacerbated by deteriorating macroeconomic conditions. So it is almost impossible to predict what the coming winter will bring.

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Text credit: Cryptoslate