Bitcoin is struggling below $45,000 but there are signs it could break out

Bitcoin’s stealth rally over the past two weeks has brought it close to a key level that analysts at Miller Tabak + Co. say it must break above to continue its upward path.

Having gained 15 per cent since March 11, the largest cryptocurrency by market value is close to reaching $45,000. If Bitcoin “can break above that level next week in any meaningful way, it should gain a lot of upside momentum,” said Matt Maley, chief market strategist at Miller Tabak + Co.

Maley’s watching a so-called “ascending triangle” pattern and says that he’d like to see the breach above $45,000 happen during the week because weekend trading can be thin.

The largest cryptocurrency rose as much as 0.8 per cent on Sunday to $44,947, reaching the upper end of what has been a narrow $35,000-to-$45,000 range since early this year.

The coin has been stuck in that tight path as the Federal Reserve and other central banks remove some of the stimulus measures they had put in place in response to the pandemic downturn. That means there’s less cash to go toward riskier assets, including crypto.

Still, Bitcoin rallied this month alongside broader increases in US stocks. The coin is up nearly 8 per cent since the end of February, and the Bloomberg Galaxy Crypto Index has added a similar amount in that span.

Though cryptoassets under management grew in March, aggregate trading volumes fell 30 per cent to $259m, the fifth consecutive month that they failed to break this downward trend, according to a report from CryptoCompare.

Bitcoin is also well above its 50-day moving average, which currently sits around $41,085. That puts it around the 80th to 90th percentile and in the “overbought” range, according to Bespoke Investment Group. But, though that signals potential for a downturn in price for many assets, with Bitcoin it’s historically been the opposite, the firm said.

“When it has been similarly overbought in its past (over the last five years), it has averaged significant gains going out one to 12 months,” according to the Bespoke report.

When Bitcoin has been in the ninth decile of its spread versus its 50-day average, it’s historically risen 16 per cent in the next month, is up 100 per cent six months later, and has gained 274 per cent after a year, according to data compiled by Bespoke.

“This isn’t normally what you see for the typical stock or ETF, but because Bitcoin has mostly traded higher over the years and really has a lot of momentum trading behind it, overbought levels have yet to become a headwind for this particular space,” Bespoke wrote.

David Duong, head of institutional research at Coinbase Global, points out that over the past eight weeks, cryptos have seen shallower drawdowns than US stocks have. Equities, for instance, saw a two-standard-deviation drop on three different occasions over the last several weeks, while Bitcoin notched a one-standard-deviation decline.

“This decoupling is important in our view, because it suggests that crypto returns can exhibit less relative volatility compared to other risk assets amid some of the most challenging market conditions we have faced in recent history,” Duong wrote in a note. “This could potentially support an argument for greater (relative) crypto stability in the short term.”