Bitcoin's 'Ichimoku Cloud' Suggests Deeper Drop Toward $24K: Technical Analysis

Ichimoku Cloud, created by Japanese journalist Goichi Hosada in the 1960s, is widely used to gauge momentum and trend strength.

AccessTimeIconMay 25, 2023 at 7:13 a.m. UTC
Updated May 25, 2023 at 7:27 p.m. UTC

Bitcoin's (BTC) recent price slide may have legs, according to technical analysis by alternative asset management firm Valkyrie Investments.

The leading cryptocurrency by market value has declined by 10% to $26,200 this month, thanks to renewed hawkish Fed bets, the recovery in the dollar index, and the lingering U.S. debt ceiling uncertainty.

Per Valkyrie, a further decline toward $24,000 may be seen as bitcoin's daily chart Ichimoku cloud, a momentum indicator, has flipped bearish.

Japanese journalist Goichi Hosada created the Ichimoku Cloud in the late 1960s. The indicator comprises five lines: Leading Span A, Leading Span B, Conversion Line or Tenkan-Sen (T), Base Line or Kijun-Sen (K) and a lagging closing price line.

The difference between Leading Span A and B makes up the cloud, which is used to identify broader trends. A bullish cloud is green, while a bearish one is red. Crossovers of Tenkan-Sen, a nine-day price mid-point, and Kijun-Sen, a 26-day price mid-point, are used to identify short-term trading signals.

The chart below shows a green Ichimoku cloud, indicating a constructive broader outlook. However, the cryptocurrency's price has recently fallen back into the cloud, and the Tenkan-Sen (blue line) has crossed below the Kijun-Sen (red line), confirming a bearish crossover.

"This suggests an ongoing high-timeframe bullish trend with a decline in bullish momentum and the potential for near-term retrenchment," analysts at Valkyrie, led by Chief Investment Officer Steven McClurg, wrote in a note to clients on Tuesday.

Bitcoin's daily chart.png

The early March bitcoin pullback ran out of steam at the lower end of the cloud, with the subsequent bounce taking prices to $31,000 by mid-April.

"A price close within the cloud is suggestive of losing cloud support and triggers the possibility of traversing to the opposite [lower] edge of the cloud. In this case, an Edge-to-Edge trade would bring prices to around $24,000," analysts added.

Edited by Sam Reynolds.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.