Is This Crypto’s Big Moment? Or Big Breakdown?

Instead of a sizzling summer rally, crypto once again finds itself at a crossroads.

The year began with hope and excitement. Bitcoin had just led stocks off their lows during the fourth-quarter melt-up rally, gaining more than 60% off its October lows. Crypto bulls were giddy as two big developments appeared on the horizon: the impending Bitcoin ETF approvals – courtesy of the Securities and Exchange Commission – and the halving.

Both were seen as potentially transformational events that had the potential to spark the next leg of an already red-hot rally, finally pushing Bitcoin over the hump on the road to $100,000.

But, of course, it all didn’t play out as smoothly as everyone thought.

For a while, the bulls enjoyed near-perfect trading conditions. The stars aligned for Bitcoin during the first quarter as the ETFs earned approvals in January. Following a quick reset, Bitcoin launched higher, rallying 70% by March, and nearly 160% over the trailing 12 months.

Bitcoin finally posted a new high in March after eclipsing $73,000, its first all-time high following the ugly “crypto winter” bear market that began in early 2022. Perhaps even more impressive was the fact that Bitcoin managed to gain more than 350% off its bear market lows. And with the halving in sight, bullish predictions got even bolder.

Just how high could crypto rise by the end of the year?

Was $150,000 a ridiculous target?

What about $175,000?

Unfortunately, this is exactly when Bitcoin started to run out of steam.

Nearly four months have passed since those all-time highs printed. Since this high water mark, Bitcoin’s pops and drops have been confined to a wide trading range of roughly between $57K – $72K.

The halving came and went in late April, but it failed to spark a major rally right away. Bitcoin did manage to kickstart a fresh leg higher in May, yet it did not extend beyond $70K not once, but twice over the next six weeks.

Since the early June retest, Bitcoin endured a slow retreat back to the bottom of its wide trading range. One failed bounce at $60K was all the bears needed to trigger a quick breakdown.

This leaves Bitcoin in an uncomfortable position as it teeters in no-man’s land, a cool 25% off those all-time highs set back in March. More importantly, Bitcoin has lost a critical support level as it falls to prices not seen since February.

As the crypto-HODLers lick their wounds, we should take a moment to discuss what the price action is revealing – and try to make some educated guesses as to what the next few weeks and months have in store for Bitcoin.

First, it’s important to recognize that $60K was a big, obvious level for Bitcoin. We need to respect the breakdown and give the bears the benefit of the doubt until the situation improves. Not only was $60K a clear, horizontal support level – it also happens to be where we’ll find Bitcoin’s rising 200-day moving average (not pictured).

While I don’t use moving average breaks as sell signals, it’s worth noting that the last time Bitcoin broke below a rising200-day moving average was August 2023. It took two months of sideways action before it reclaimed those levels. This was also part of a bigger consolidation pattern for Bitcoin – one that took nearly seven months to play out.

A best-case scenario for the bulls that doesn’t involve an immediate recovery would be a similar sideways consolidation to what we witnessed last year. The sideways trend in 2023 had its fair share of rallies and dips, yet never got to a point that would have warned of a bigger breakdown (Bitcoin never fell back below $25K following the March rally).

Taking a more bearish view, I could also see Bitcoin tumbling back to the $43K-$44K range, which was an area that acted as resistance back in December – January. If this scenario were to play out, I suspect we would have to endure a longer drawdown period before expecting crypto to reset for its next bull run.

Another point for the bears is the complete failure of the halving to generate any sustained positive momentum.

We’ve discussed the halving track record before since the past 3 halving events have led to a massive run-up in price. Yes, this is a ridiculously small sample size. But I did like our chances to at least see some positive follow-through following the event in April. Instead, all we got was more chop.

As for how to react right now, I think it’s important to note that while shorter-term trends have turned bearish, I doubt crypto is completely broken. Instead, it probably just needs time to regroup. Whether this takes three weeks, three months, or longer remains to be seen. This isn’t a dip I’m rushing to buy. Not yet!

Crypto is like any other over-hyped asset. No one wanted to buy Bitcoin as it languished below $20K for three months in late 2022. But everyone wanted in on the action as it roared back above $60K earlier this year.

Now, these bulls that were late to the party are going to have to try to wait out this corrective action. We’ll soon see just how resilient these speculators can be…

The Daily Reckoning