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Will Bitcoin Be the Next De-Risking Domino to Fall?

Bitcoin prices are under pressure, but is now the time to buy? Let's look at the chart.

I have been struggling with the stock market action leading up to the last week or two. Bitcoin is in that equation too, even before this latest dip.

The S&P 500 and Dow made new highs at the start of the year. The Nasdaq was close, but couldn’t take out its November peak. Either way, the trend was up. 

However, those news highs came with a heaping dose of bearish divergence and did so with what I called a phantom bear market in the works.

That’s as a large number of stocks were down more than 50% and as there was a clear bear market in growth stocks. 

All you had to do was look at the Ark Innovation Fund  (ARKK) - Get ARK Innovation ETF Report to know that.

Half of FAANG was starting to slip. So where Tesla  (TSLA) - Get Tesla Inc Report and Nvidia  (NVDA) - Get NVIDIA Corporation Report. Another risk-on asset — crypto — was also struggling. On Jan. 6, I said bitcoin and ethereum were hanging by a thread.

In other words, too many dominos have started to fall and now here we are. What’s next for the leader in crypto?

Trading Bitcoin

Weekly chart of Bitcoin.

Weekly chart of Bitcoin.

Bitcoin is down about 5.5% so far today and Ethereum is off about 7%. Both are hitting lows not seen since the third quarter of 2021.

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This $40,000 level has been significant for Bitcoin and we have written about it several times over the last month. Not only is it the December low/the flash crash low, but it’s been support for months.

Two weeks ago we saw bitcoin trade back below the weekly VWAP measure. Then last week it was rejected by this measure (just as it was this week too).

That raised a caution flag, but the drop below $40,000 was the most noteworthy.

Bitcoin is fetching a bid now, but unless it can reclaim the $40,000 to $41,000 zone, I am remaining rather cautious with this one for the time being.

Back above $41,000 and the two-week high is in play, along with the weekly VWAP measure.

If bitcoin continues to trade lower, traders should keep their eye on the 21-month moving average near $34,250.

Below that brings up the very important $30,000 area, give or take $1,000 or $2,000. That’s a pretty big range, admittedly, but if this was a $30 stock, it’d be like saying plus or minus $1 or $2 a share.

So it’s not that egregious, especially for an asset with this much volatility.

In that $30,000 zone is also the monthly VWAP measure. It’s also where Bitcoin found support all throughout 2021. If the equity markets remain under pressure, I’d be hesitant to rule out a test of this area for bitcoin.