It’s been a tough week for the cryptocurrency market, largely due to the collapse of the Terra ecosystem and its knock-on effect on Bitcoin (BTC), Ethereum (ETH) and altcoin prices, as well as the panic selling that took place after stablecoins lost their peg to the U.S. dollar.
The bearish headwinds for the crypto market have been building since late 2021, when the US dollar gained strength and the US Federal Reserve indicated it would hike interest rates later in the year.
According to a recent report from Delphi Digital, the 14-month RSI for the DXY has now “crossed above 70 for the first time since its rise in late 2014 into 2016.”
This is notable as 11 out of 14 cases where this occurred previously “resulted in a stronger dollar ~78% of the time over the following 12 months,” indicating the possibility that the pain for assets could be worsening.
On average, the DXY gained about 5.7% after its RSI surged above 70, which as of May 13 would “take the DXY index just below 111, its highest level since 2002.”
BTC/USD vs. DXY Index (inverted) and a 60-day rolling correlation. Source: Delphi Digital
“Assuming that the correlation between DXY and BTC remains relatively strong, this would not be good news for the crypto market.”
Bitcoin is in a key area for price bottoms
With a larger picture approach, BTC is now retesting its 200-week Exponential Moving Average (EMA) near $26,990, which Delphi Digital says has “historically served as a key area for price bottoms.”
BTC/USD vs 200-week EMA vs 14-week RSI. Source: Delphi Digital
Bitcoin also continues to hold above its long-term weekly support area of $28,000-$30,000, which has proven to be a strong area of support during the recent market turmoil.
While many traders have been panic selling over the past few days, Pantera Capital CEO Dan Morehead has taken a contrarian approach. notice“It’s best to buy when [the] The price is well below the trend. Now is one of those times.”
Bitcoin fund inflows versus price action.
- “Bitcoin has only been as “cheap” or cheaper compared to trend 5% of the time since December 2010. If you have the emotional and financial resources, go the other way.”
A word of caution, however, was offered by Delphi Digital, who noted that “the best opportunities or ‘deals’ in the market don’t last long.”
As BTC trades in the $28,000-$30,000 range for an extended period, “further continuation becomes more likely the longer we see price rally in these ranges.”
If there is another drop, the “weekly structure and volume structure support at $22K-$24K” and the “all-time highs of $19K-$24K” are the next major areas of support.
“Early signs of surrender are beginning to bleed through, but we can’t yet say we’re nearing the point of maximum pain.”
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.