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Chart threatens the bullish outlook for cryptocurrencies and Bitcoin
The recent price action of Bitcoin raises new questions about whether the cryptocurrency’s latest recovery attempt can hold, according to analysts at Wolfe Research, who warn that technical patterns and investor sentiment may be setting the stage for another period of weakness. Bitcoin (BitfinexUSD) has already fallen 20% since the beginning of the year.
Wolfe analysts Rob Ginsberg and Reid Harvey argue that market participants remain cautious after several failed rallies in recent months. Bitcoin has struggled to maintain upward momentum despite multiple rebound attempts, reinforcing doubts about the sustainability of any short-term recovery.
“We’re not saying you should carry past trauma into what seems like a healthy new relationship… but it’s hard to forget past betrayals,” the analysts wrote, referring to Bitcoin’s tendency to lure investors back into rallies that later fade.
Bitcoin daily chart — Wolfe Research
The chart shows Bitcoin trading within a series of narrowing consolidation patterns after a sharp drop earlier this year. Although the cryptocurrency has attempted to stabilize, Wolfe says the structure resembles previous setups that ultimately resolved to the downside.
The analysts pointed to a similar pattern that formed in January. At that time, Bitcoin appeared to stabilize within a consolidation range before breaking down again and triggering another phase of decline.
“In January we saw the price reach a two-month high. It seemed the crisis had been averted and we were heading back above $100,000,” the analysts wrote. “Oh, what wishful thinking that turned out to be.”
Now a comparable formation appears to be developing. Bitcoin recently tested its 50-day moving average — a level that often acts as a key technical signal for momentum traders. Wolfe says a move above this threshold could temporarily attract buyers.
But the analysts warn that such a rally could prove short-lived if broader risk sentiment does not improve.
“Our feeling is that if it breaks higher, many will jump back on board — only to be thrown off again,” they said.
Trading in tandem with software stocks
Wolfe’s broader concern extends beyond Bitcoin itself. The firm notes that cryptocurrency markets often move in tandem with speculative technology stocks, particularly software companies that dominate growth-oriented equity portfolios.
“What conclusion does this lead us to? Well, first of all, software — which Bitcoin trades almost perfectly in tandem with — has already stalled and is pulling back as its relief rally proves short-lived,” the analysts wrote.
At the same time, Wolfe sees few macroeconomic forces currently providing strong support for risk assets. Recent pressure related to inflation, credit conditions, and the strength of the U.S. dollar may be easing, but analysts say there is still no clear catalyst that would justify a sustained bullish move.
“Whether it’s inflation, credit, the strengthening dollar, or the lack of real capitulation in the equity market — we don’t think any of it bodes well for Bitcoin’s path forward,” the analysts concluded.
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