The current downturn in bitcoin is set to generate a bearish technical signal, suggesting a significant potential decline ahead, as highlighted by Michael Purves, CEO of Tallbacken Capital. This bearish outlook is primarily based on the monthly moving average convergence/divergence (MACD) indicator, which analyzes the momentum of price movements in relation to specific moving averages.
The MACD indicator is calculated by taking the difference between the 26-month exponential moving average (EMA) and the 12-month EMA of an asset. When this difference, the MACD, crosses below its own 9-month EMA—referred to as the signal line—it typically indicates a bearish trend. November is anticipated to mark the sixth occasion in bitcoin’s history where such a monthly MACD sell signal has materialized. Data indicates that on previous occasions, there has been a stark pattern: 80% of the time, bitcoin has experienced a subsequent decline of around 60% following this type of technical breakdown.
Purves notes that the potential for acquiring bitcoin at lower prices, a common strategy among investors during dips, seems less promising at this juncture. “Longer-term dip buying right now appears less likely and bearish momentum is reinforced,” he stated, reflecting a cautious stance on the market’s trajectory.
In a broader context, Purves also observed that bitcoin’s correlation with other asset classes has significantly increased compared to the first half of 2021—a time characterized by heightened interest in technology and speculative stocks. However, he anticipates that this correlation may start to diminish in the near future.
Addressing the immediate market conditions, Purves pointed out that bitcoin is currently in an oversold position, with a daily relative strength index (RSI) of just 22. The price has been hovering around the 80k level, which corresponds to the lows observed during a period he refers to as “Liberation Day.” Given these circumstances, he suggests that some short-term consolidation in the price of bitcoin should be expected, although he clarifies that he does not presently hold a specific position on the cryptocurrency.
