Bitcoin may continue its downtrend as there are few catalysts that could reverse the cryptocurrency’s fortunes, says Alex Thorn, head of research at Galaxy Digital.
Thorn said in note on Monday that there is a “significant chance” that Bitcoin (BTC) could fall to the bottom of the $70,000 supply gap in the coming weeks before testing its realized price of $56,000, the average cost of all BTC in circulation.
“Catalysts are still hard to find and the narratives are also working against Bitcoin as it does not trade together with gold and silver in a market-wide ‘downside trade’,” he added.
Bitcoin rose 3% on Monday to just under $78,500 after rising from a 9-month low. Its value is currently down 39% from its high of over $126,000 in early October, for CoinGecko.
Bitcoin may find support at the realized price, marking a bottom
Thorn said that Bitcoin has historically traded below the realized price at the lows of previous bear markets and has typically found support “around or just below” the realized price before reaching a higher price.
He added that Bitcoin has also seen “key support” at its 200-week moving average, the average price at the time, in each of the last three bull markets when it has fallen below its 50-week moving average.
Thorn said Bitcoin lost support at its 50-week moving average in November, while its 200-week moving average is currently at $58,000.
“These levels have historically marked cycle bottoms and represented strong entry points for long-term investors,” he added.
A slowdown in sales by long-term bondholders could signal that the bottom is near
Thorn said there was also “little evidence of significant accumulation” by vast buyers and long-term holders. This could have an impact on the price of Bitcoin as it signals that buyers may wait for the price of Bitcoin to drop before making a purchase.
Thorn said, however, that profit-taking by long-term holders, which can push prices lower, “has started to decline noticeably,” but added that “it’s possible there are more long-term holders waiting to sell at higher prices,” which could create resistance to rising prices.
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“Nevertheless, the recent decline in profit taking by long-term bondholders is noticeable and should signal that we are approaching the bottom,” he added.
The Market Structure Act is unlikely to be the main catalyst
The crypto industry is closely watching the U.S. Senate as lawmakers intend to pass the Cryptocurrency Market Structure Act, which will outline how the sector will be regulated.
However, Thorn said that while the passage of the legislation “may act as a short-term external catalyst, the chances of the legislation being passed have diminished in recent weeks.”
Lawmakers had difficulty gaining bipartisan support for the bill, and the momentum behind the bill’s passage weakened because the Senate Banking Committee, key to the bill’s passage, did not reschedule a meeting to introduce the bill.
Regardless, Thorn said, “any positive momentum generated by the transition [is] is more likely to benefit altcoins than BTC.”
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