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- A deterioration in short-term momentum for bitcoin led to a 13% sell-off in the past week.
- But bitcoin managed to successfully test a key technical support level near $39,900 on Tuesday.
- Cryptocurrencies still remain in risk-off mode as bitcoin continues to outperform ether on a relative basis.
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A sell-off in bitcoin on Tuesday tested a key technical support level for the cryptocurrency, but there could still be more downside ahead based off of deteriorating momentum indicators.
Bitcoin has dropped 13% over the past week, with much of the decline coinciding with the $300 billion Evergrande debt crisis in China. But bitcoin managed to bounce higher off the $39,900 level late Tuesday night, a key horizontal support level monitored by technical analyst Katie Stockton of Fairlead Strategies.
Despite successfully testing support on Tuesday, bitcoin isn't out of the woods yet according to Stockton. Bitcoin's RSI indicator, which helps identify oversold and overbought levels, remains in a downtrend but has not yet hit oversold levels. Meanwhile, a continued decline in the MACD (moving average convergence divergence) indicator, which measures momentum, is accelerating.
For now, the bias in the short-term is bearish for bitcoin, and a weekly "sell" signal in the MACD indicator would be enough to turn the intermediate-term bias for bitcoin to bearish from bullish, Stockton highlighted in a note on Monday.
But Stockton still sees long-term upside ahead for the cryptocurrency as "the long-term uptrend still has a hold on bitcoin." Stockton said that once the current pullback matures, the recent peak near $53,000 will serve as a "minor hurdle to all-time-highs" near $65,000, representing potential upside of 54% from current levels.
Bitcoin isn't the only cryptocurrency experiencing a current period of weakness. Ether is also down sharply from its recent highs, and the relative outperformance of bitcoin over ether in the past week suggests that the cryptocurrency space remains in risk-off mode, according to Stockton.
