What do analysts think of the current crypto market situation?

Author: Katie Stockton, CoinDesk; Compiler: Deng Tong, Golden Finance

Technical analysis has long been used to invest in cryptocurrencies. The rules are well suited to the highly volatile asset class, not only because cryptocurrencies are momentum-driven, but also because they are generally less risky overall than stocks, which can experience chaotic supply and demand dynamics.

By combining momentum indicators and overbought/oversold indicators with the identification of key support and resistance levels, investors can better understand the risk-reward dynamics of the cryptocurrency market. Investors can look for relative strength inputs to help identify opportunities.

Real-time analysis of Bitcoin charts shows that as of early May 2024, medium-term momentum indicators such as MACD (moving average convergence divergence) have experienced a loss of momentum with a bearish crossover. The loss of momentum suggests that Bitcoin is in a correction phase that should last at least a few more weeks. Downside risk is likely to be posed by the next support on the chart, near $51,500, which is defined by the 38.2% Fibonacci retracement of the uptrend from the 2022 low and supported by the rising 200-day moving average.

The loss of momentum should be viewed within a long-term bullish framework. Bitcoin broke out to a new all-time high in March 2024. This breakout extends Bitcoin's long-term uptrend with implications for the coming months and years. This suggests that the risk/reward ratio will become more favorable to investors once there are signs of a corrective low in place.

The weekly stochastic oscillator measures overbought and oversold conditions and is a useful tool to help determine when a corrective low is established. Currently, the Stochastics indicator still has room to move oversold (20%), increasing the odds of a further price correction before the long-term uptrend resumes. A move back up in the weekly Stochastics indicator from the oversold region would be a positive short-term technical catalyst for Bitcoin, regardless of the level at which it occurs.

The Relative Rotation Chart® (RRG) is a relative strength input that can be used to identify potential winners and losers in the cryptocurrency markets. The RRG shows altcoin rotation normalized relative to Bitcoin, which is at the crosshairs on the chart. There is an inherent clockwise rotation of altcoins in RRG, helping us identify when certain altcoins are in or out of favor relative to Bitcoin.

Most altcoins in the chart are pointing down and to the left, which reflects Bitcoin’s strong position in the market, especially during correction phases, when there is sometimes a flight to safety (relatively speaking). We expect most altcoins in the lower left portion of the chart to eventually fall in favor as more risk-on positioning re-emerges, suggesting that a correction phase is ripe.