Bitcoin Breakout Is Making Proponents Wary of Another Fakeout

Bitcoin broke out of its narrowest trading range in months in the waning days of March following a rough start to the year. Now, as the digital token approaches another key trendline, investors are wondering whether they’re being set up for disappointment again.

With the largest cryptocurrency settling in near the top of the $30,000 to $50,000 range he predicted just weeks ago, Michael Novogratz said Thursday that he was “more constructive” on crypto while also not providing a new forecast. The billionaire investor had warned earlier not to expect big gains in 2022 with the Federal Reserve raising interest rates.

Bitcoin traded within 10% of its 50-day average price for 51 days through March 26, the longest stretch of tight trading since July 2020, according to data compiled by Bloomberg. The breakout last weekend wiped out losses for the year but left Bitcoin still trading about 30% below its record high set in November.

Now, it’s approaching what may be an even more important threshold -- its average price over 200 days. The coin had, as of Friday, traded below that threshold for 95 days, the longest streak of bearish pattern since April 2019. After coming within 1% of its 200-day average on March 28, it now sits about 4% away.

Digital assets, like many other riskier areas of the market, have been beset by a Fed working on tamping down inflation, as well as turmoil sparked by Russia’s unprovoked invasion of Ukraine. That’s left Bitcoin bobbing up and down all year.

“There seems to be a range where Bitcoin starts to look like a pong game,” said Chris Kline, COO and co-founder of Bitcoin IRA. “There are headwinds across markets, not just in crypto. We’ve got inflation that is not transitory. There’s uncertainty around rate hikes and conversations about a recession. There is a lot of waiting on the sidelines.”

Market-watchers see an explanation that’s become popular this year: that Bitcoin is moving in the same way that stocks are. Over the same period as the coin’s mini-surge in March, the S&P 500 gained 6% and rounded off its best month of the year. The 90-day correlation coefficient of the coin and the stocks gauge now stands at 0.55, among the highest such readings since Bloomberg started tracking the data. (A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions.)

UBS strategists including James Malcolm and Alexey Ostapchuk, say it’s difficult to find evidence of a broader pickup in interest around cryptocurrencies. They cite slack online search interest, and subdued futures volumes and funding rates.

“If you just looked at these charts, you’d say ‘Go away, nothing’s happening. Wake me up some other time,’” Malcolm, head of foreign exchange and crypto research at the bank, said by phone. He described Bitcoin’s trading as “still bang in the middle of the range,” and says he’s sticking to his view the year will be a difficult one for cryptos.

Malcolm says we’re in a moment when both bulls and bears can come up with a convincing narrative. “If you want to tell a negative story, we’re still down 35% from November. If you want to tell a positive story, we’re up 45%” from the January lows.

Analysts at Citibank led by Alexander Saunders and Hannah Sheetz looked at four models, including stock-to-flow, to try to value the coin, coming up with ranges between $20,000 and $152,000.

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