If you’ve been wondering why, all of a sudden crypto markets have received a bid with no seeming change to the fundamental picture, look no further than bitcoin’s 20-week moving average, which the asset has broken above (only just!) for the first time since March. Yes, there was some speculation heading into the last FOMC meeting that the Fed would start to pivot but this was a subtle shift that only the most attentive would have picked up. However, as we’ve covered in previous market cycles, bitcoin’s 20-week MA tends to be quite a reliable indicator of how the asset is trending.
During bull phases it tends to remain above this level, coming down to test and hold it as support. During bear phases, it trades below this level, coming up to test and often failing to break it as resistance (or breaking above for a week or two with no follow-through, before dipping back down again, as it did in March). In other words, in bull markets, the line tends to mark weekly higher-lows, while in bear markets, it tends to be the level at which weekly lower-highs are formed.
What else should you weigh against Bitcoin’s 20-week MA?
A couple of notables to keep in mind here before rushing to your trading platform. During all prior bear markets in bitcoin’s short-but-storied history, its 20-week moving average (the green line on the chart) had never crossed below its 200-week moving average (the red line on the chart). This occurred for the first time in September of this year. So, bitcoin is currently in the rather interesting position of trading above its 20-week moving average (usually a highly bullish signal), but at the same time trading below its 200-week moving average (as bearish a signal as they come).
It’s actually very rare to see bitcoin trading below that 200-week moving average. It teetered just below it between August and September of 2015 and also spiked below it for two weeks during the COVID-19 crash of 2020. Both situations were extraordinary, the COVID crash for obvious reasons, and in 2015 there was such little price history to go on that the 200-week only showed up on the chart in June of that year. Ordinarily, the 200-week signals the absolute bottom of each successive bear market and, therefore, is the level at which a new round of speculative interest starts coming to the space.
The point is, while the current price action is encouraging, crypto bulls will need this extra confirmation of both the price crossing the 20-week moving average and remaining above the 200-week before they can determine with any degree of assurance that the ice from this last crypto winter may be tentatively beginning to thaw. Encouraging, but caution is still advised at this point. Investors would most like to see a clear dovish fundamental shift from the Fed in order to really have confidence in gains.