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Bitcoin is teetering on a very key technical level

Zack Guzman
·Senior Writer
·3 min read
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After Wednesday's cryptocurrency collapse erased more than $500 billion in global market cap, bitcoin finds itself teetering on a very key technical level.

Regardless of whether or not it was all sparked by Elon Musk tweets, or a rotation by institutional players out of bitcoin (BTC-USD) into altcoins or gold, the world's largest crypto by market cap dipped below its 200-day moving average on Wednesday. According to historical bitcoin data from Fundstrat Global Advisors, bitcoin trading above or below that level impacts its forward returns in a very meaningful way. 

As their data points out, six-month forward returns average just 10% when bitcoin trades below that indicator compared to a 193% average over the same time period when it's above the 200-day moving average. On Wednesday, bitcoin tanked to break that $40,000 level before bouncing off the low of about $30,000 to trade back around $39,000. Thursday morning bitcoin recovered from a sharp sell-off.

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Interestingly, JPMorgan highlighted $35,000 as current fair value for bitcoin, according to the firm's model that weighs its volatility ratio versus gold's. Analysts there have a longer-term hypothetical price target of around $140,000 if bitcoin is able to steal meaningful investor interest away from gold. However, their data shows that has not been the case as of late, with bitcoin funds notching net institutional outflows over the last four weeks for the first time. Ethereum fund flows have managed to stay in positive territory.  

"In other words, at least in the fund flow space, some of the outflow from bitcoin funds may have seen inflows into ethereum in addition to gold," analysts wrote in a Tuesday note.

JPMorgan highlighted that fund flows dipped negative for bitcoin products for the first time while ethereum funds have managed to stay in positive territory. (Source: JPM)
JPMorgan highlighted that fund flows dipped negative for bitcoin products for the first time while ethereum funds have managed to stay in positive territory. (Source: JPM)

CoinShares Chief Strategy Officer Meltem Demirors told Yahoo Finance Wednesday that the big collapse in crypto prices was somewhat signaled given how far smaller crypto assets had advanced in the last few months relative to bitcoin. Bitcoin dominance, a measure of bitcoin's market cap relative to the broader crypto space, had cratered to a level not seen since May 2018, around 40.6%, amid enthusiasm for meme coins and projects tied to decentralized finance, or DeFi.

"What we tend to see when people make money in crypto markets, they tend to rotate from the established large-cap assets like bitcoin and ether into some of the longer-tail higher risk assets as they chase risk-reward ratios," she said. That was undone to some extent as investors fled back into bitcoin from altcoins, shooting bitcoin's dominance back up to 45% Wednesday evening. Continued inflows into ethereum among institutional investors gave Demirors more confidence that the rotation is, in the long run, "a great development for the crypto space."

Ikigai Asset Management founder Travis Kling echoed that statement, telling Yahoo Finance that moves like what played out Tuesday represent rare opportunities for new entry points. 

"If you have any kind of medium or long-term sort of investment period, right now is an outstanding time to buy," he said, adding that buying in small pieces is a safer way to go. "Dollar cost averaging is and always will be the best way for investors to get exposure to this asset class."

Even after Tuesday's collapse, at $39,000 bitcoin is still up 25% on the year to outpace the S&P 500's gain of 11%. Ether is still up 232% year-to-date.

Zack Guzman is an anchor for Yahoo Finance Live as well as a senior writer covering entrepreneurship, crypto, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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