Bitcoin falls below all important moving averages for the fifth time ever
A moving average (MA) is a stock indicator commonly used in technical analysis. As the name suggests, the indicator smoothes price data by creating a constantly updated average price over a specific time period.
In technical analysis, moving averages help identify trend directions by analyzing past price action.
Moving averages are widely used when analyzing the price of Bitcoin. Of all the cryptocurrencies, Bitcoin behaves most like stocks, and has historically responded well to such analyses.
Although technical analysis (TA) remains a controversial topic in the crypto industry, analysis of Bitcoin’s MAs can be used in conjunction 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 the historical data, we can use moving averages to identify periods where Bitcoin’s price fell to cycle lows.
When analyzing Bitcoin, the 60-day, 120-day, 200-day, 360-day and 720-day moving averages are particularly important. Whenever Bitcoin’s price fell below these MAs, the market saw what some analysts call a “generational buying opportunity”.
According to data from Glassnode, Bitcoin has fallen below all important moving averages for the fifth time ever. Bitcoin’s current stint below the moving averages is also the longest ever – almost double the length of the previous dips we’ve seen in late 2011, 2015, 2019 and 2020.
Moving averages are also part of other key indicators in determining the Bitcoin market cycle. One of these indicators is Bitcoin Investor Tool, created by analyst Philip Swift. Calculated as a tool for long-term investors, the indicator consists of two simple moving averages of Bitcoin’s price – the 2-year MA and a 5x multiple of the 2-year MA.
These moving averages are used as a basis for determining undervalued and overvalued conditions in the market. It indicates periods when prices are likely to approach cyclical peaks and troughs.
Bitcoin’s price trading below the 2-year MA has historically generated outsized returns and signaled low cycles. When the price traded above the 2-year MA x5, it signaled the top of the bull cycle and a zone where long-term investors de-risk.
Since the Terra (LUNA) collapse in May, Bitcoin has remained below the 730-day MA. Since 2011, BTC went below the 730-day MA only three times – between 2015 and 2016, in 2019, and briefly in 2020. Each time BTC spent below the 730-day MA was shorter than the previous one. The fall in March 2020 was measured in days, not months. Bitcoin’s current stint below the MA has broken this pattern and is entering its fourth consecutive month.
Bitcoin eventually recovered below the 730-day MA. If its historical patterns repeat themselves, it is also set to recover from this fall. However, it is still too early to say how fast the recovery will be. The current uncertainty in the crypto market is exacerbated by deteriorating macro conditions, making it difficult to predict what the coming winter will bring.
