A widely-tracked bitcoin (BTC) technical analysis indicator has flipped bearish, spurring some crypto followers on Twitter to express concerns an extended price slide is in the offing.
The moving average convergence divergence (MACD) histogram, used to gauge trend strength and changes, has crossed below zero on the bitcoin price weekly chart, according to technical analysis platform TradingView. That represents a bullish-to-bearish shift and is widely considered a sell signal. (Crossovers above zero suggest the opposite).
Some technical analysts, however, say the signal is undermined by other factors, and macroeconomic events such as the U.S. inflation figure due today and Wednesday's Federal Reserve decision will also influence bitcoin price performance. Still, the signal comes after BTC's 16% decline from highs around $31,000 registered two months ago, raising questions about the sustainability of the bull revival witnessed early this year.
"Moonboys in disbelief," pseudonymous crypto trader @CryptoBullet1 tweeted Monday, referring to people who'd expected a meteoric rally.
According to @CryptoBullet1, the MACD bear cross looks similar to one observed roughly four years ago. At the time, the market was coming off an impressive rally, much as it has over the past two months, and nosedived following the indicator's bearish turn.
Bearish crossovers of April 2022, November 2021 and April 2021 also brought pain to the market.
"That's why I believe the most probable outcome is we go to $19K-$20K," one Twitter user said, noting the MACD's record of predicting extended market swoons.
Key support intact
Katie Stockton, founder and managing partner of technical analysis research provider Fairlead Strategies, disagrees.
"A new weekly MACD 'sell' signal is a potential setback, but short-term oversold conditions are in place and intermediate-term oversold conditions are in reach, which gives bitcoin a better chance of holding up near support [at $25,200]," Stockton said in a note to clients on Monday.
Bitcoin continues to hold the resistance-turned-support of $25,200 amid regulatory uncertainty and panic selling in alternative cryptocurrencies. Prices blew past the said level in March, confirming a bull revival.
The weekly chart shows bitcoin holding support at $25,200, marked by the horizontal line and stochastic indicator just short of flashing an oversold signal with a below-20 reading.
Oversold signals are unreliable as standalone indicators, but when accompanied by prices trading at crucial support, as in BTC's case, they often portend renewed buying interest.
Focus on macro data
Moreover, Tuesday's U.S. consumer price index (CPI) release and Wednesday's Fed rate decision could make or break price charts.
According to Bloomberg estimates, May's CPI is expected to show the cost of living in the world's largest economy rose 0.2% from the previous month and 4.1% over the prior year, a slowdown from April's 4.9% annual gain. Core inflation, which strips out the volatile food and energy component, is expected to have climbed 0.4% month-on-month and 5.2% year-on-year.
The bias for bitcoin is to the topside, according to David Brickell, director of institutional sales at crypto liquidity network Paradigm,.
"We've digested a lot of bad news in the past couple of weeks, including a reprice of higher rates and the U.S. dollar since April. Risk/reward for a move back to top of the range [is attractive]," Brickell tweeted. "I also think likely CPI [might] undershoot and markets [are] behind on how quickly inflation falls from here."
A faster decline in CPI would provide the Fed the room to cut interest rates. The central bank has raised rates by 500 basis points since March 2022, destabilizing risk assets, including cryptocurrencies.
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