In October, Cryptocurrencies were setting new all-time highs left and right with what looked like plenty of steam behind to continue; just one month later, things took a turn for the worse.
Near the start of October, cryptocurrencies were setting new all-time highs left and right with what looked like plenty of steam behind to continue; just one month later, things took a turn for the worse. With market breadth waning in recent weeks while bubble fears persist, the cryptocurrency space has followed the downside of the average stock and run with it. The Hashdex Nasdaq Crypto Index US ETF (NCIQ) has declined over 20% from its October peak, underscoring the swift and broad-based pullback within crypto over the last month. However, the fund still sits right above its bullish support line for the time being. With bitcoin and the crypto market seeing the biggest declines since March, does relative strength view this as a buying opportunity or a time for pessimism after losing steam?
Unlike traditional markets, there’s no intrinsic value of Bitcoin and most cryptocurrencies, meaning price is solely based on the supply and demand of traders. As such, sentiment is the main driver asset value, making technical readings one of the few guides to navigate the crypto landscape. Looking at the bellwether of the cryptocurrency space, Bitcoin is showing some cause for concern. For starters, the coin reversed into a column of Os on its trend chart to match levels first achieved at the end of 2024. On its 3.25% market RS chart, Bitcoin also reversed into both a column of Os and an RS sell signal for the first time since March, highlighting its relative weakness to stocks. Similarly, the iShares Bitcoin Trust ETF (IBIT) has seen significant deterioration in relative strength over the past few weeks. IBIT now holds an unacceptable fund score of 2.54, which is down significantly from its peak of 5.91 in October. Given recent weakness, those with Bitcoin exposure could reduce positions until things pick up pace.
While crypto weakness persists, there are several other metrics we can keep an eye on for eventual improvement. Bitcoin moved back to a bull market on April 22nd, but movement below 100k could see the cryptocurrency move back into a bear market. Bull markets have historically been more bullish for returns overall, even if returns haven’t much better over the last five years. Next, if Bitcoin were to no longer fail its bogey check and reverse into a column of Xs versus cash (MNYMKT) on a 6.5% scale, that would be a further sign of technical improvement for the coin. Historically, when Bitcoin passes its bogey check, it has delivered higher average returns compared to periods when failing the check. Lastly, Bitcoin is trading below its 50d and 200d moving averages, further signaling consistent recent weaknesses. Like the other metrics, BTC has averaged significantly better returns when trading in an uptrend above its MAs.
When it comes to purely speculative assets like Bitcoin, panic among investors has historically been more likely to beget further panic. Meanwhile, euphoric conditions might see other investors rally around the asset for fear of missing out on the upside. This phenomenon has played out in many of our metrics, with cryptocurrencies usually performing better when already in an uptrend, as you would expect with momentum. As a result, the path of least resistance for crypto is to the downside for now, and our expectations for cryptocurrencies should potentially be lowered until we see signs of improvement. While current weakness may present a buy-low opportunity, investors have historically seen greater stability and returns fading downturns rather than attempting to catch falling knives.
