Things move fast in crypto markets. Until a few days ago, before the latest bout of macro uncertainty, bitcoin pushed ahead of $80,000, peaking just below $83,000 on May 6. To understand why the market suddenly moved the way it did, you must look at why it was stuck in the first place. That $83,000 ceiling was not arbitrary.
There’s something in technical analysis called moving averages, which is the average price range of an asset over a specific period. A 50-day moving average calculates the price of, say, bitcoin at the close of each day over the last 50 days of trading. It’s called a moving average because it constantly shifts to keep up with the latest data, cancelling days at the tail end and adding at the front.
Traders use moving averages to reduce the noise in the data. The 200-day moving average for bitcoin is $82,455. The price at which it ran out of headroom a few weeks ago was $82,499.
It’s worth mentioning that technical analysis is about as contentious as a weather forecast in Cape Town. Sometimes it’s spot-on, other times it predicts sunshine and you get horizontal rain and trees flying in the streets. Still, many credible analysts swear by the 200-day moving average.
It tells you something about where confidence actually sits and, on the other end, where confidence fades
The reason traders keep coming back to it is simple. When enough people believe a number matters, it starts to matter. The 200-day moving average works partly because it sometimes works and partly because everyone’s watching it. That’s just how markets behave.
The big question now is what it takes to give bitcoin and others a lift beyond the 200-day moving average, which many consider the definitive line between bearish and bullish. Markets responded last week by not accepting a drop below $80,000, as the price bounced off $78,000 before pushing to $82,000 the next day. Is the latest dip a signal of lingering bearish sentiment?
The floor looked convincing last week, and as we’re seeing now, it’s not a guarantee of anything. But a market that refuses to fall is quietly telling you something about where confidence actually sits and, on the other end, where confidence fades.
Broadly, bitcoin is still in the positive over 30 days. What’s changed in the past month is the mood. The US and China are talking again. And the biggest names in traditional finance keep quietly adding crypto to their offerings to clients. None of it is a green light. But after months of crypto drifting sideways, it could be enough to shift the mood.
De Wit is country manager for Luno South Africa
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