Bitcoin (BTC) is facing a rare chart phenomenon which has historically resulted in 50% price drawdowns, new data shows.
In a tweet on April 25, popular account Nunya Bizniz noted a fresh warning sign from two key moving averages on BTC/USD.
Analyst: BTC could spend 6 months recovering from dip
For only the third time in its history, Bitcoin’s 20-week and 50-week moving averages (WMAs) have both started to slope downwards.
While that may look harmless at glance, the result of the first two events – in late 2014 and late 2018 – was BTC/USD losing over 50%.
On 3 occasions the slope of both the 20 & 50ma turned negative.
The first 2 lead to 50%+ corrections.
This time? pic.twitter.com/eIMsQ6dk8H
– Nunya Bizniz (@Pladizow) April 25, 2022
Both came at similar points in Bitcoin’s four-year halving cycles, and while slightly ahead of time, it has now been nearly as long since the 2018 dip, this bottoming out at $3,100.
“I think this chart draws valid parallels,” longtime commentator and macro investor Tuur Demeester commented on the findings.
“If bitcoin could not capitulate this time and hold above $35k, it would be an incredibly bullish sign. My base case scenario however, given how weak global markets look, is a downwards slide and 3-6 months of price recovery.”
BTC/USD 1-week candle chart (Bitstamp) with 20WMA and 50WMA. Source: TradingView
In mid-March, the 20WMA crossed under the 50WMA, data from Cointelegraph Markets Pro and TradingView shows, in what is commonly known as a “death cross” move among chartists. Despite its name, the phenomenon has not always resulted in significant losses.
Dollar strength sparks increasing suspicion
The strength of the U.S. dollar in the face of anti-inflation maneuvers by the Federal Reserve is also in focus as a preemptive warning sign for those forecasting a shock event after two years of liquidity printing.
“DXY approaching multi-decade highs,” analyst Dylan LeClair continued in a fresh Twitter thread on the topic Monday.
“The USD continues to strengthen against foreign fiat currencies, tightening financial conditions. A breaking point for a historically over-leveraged economic system is approaching, by design.”
U.S. dollar currency index (DXY) 1-week candle chart. Source: TradingView
For LeClair, it is very much a case of short-term pain, long-term gain for BTC hodlers. The recovery will come via a “pivot” by the Fed, which will be unable to sustain inflation-busting monetary tightening for long.
“Fed will eventually be forced to switch back to easing, as a deep global recession will follow any sustained period of monetary tightening,” he forecast.
“Supply chain wreckage from Ukraine conflict & China lockdowns with this level of global indebtedness = sovereign defaults. BTC will fly.”
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