Technical strategist Tom DeMark in March said bitcoin could fall as low as $18,418 — back when the cryptocurrency was trading as high as $48,000.
A volatile weekend had bitcoin BTCUSD, -0.22% briefly trading below $18,000, as it traded around $20,000 on Monday, down some 70% from its Nov. 10 peak of $68,924. Bitcoin has collapsed in value as the Federal Reserve began lifting interest rates.
DeMark’s indicators place great importance on the number of days, which don’t have to be consecutive, in which there was a close lower than the close two days ago. Subject to various conditions, when the countdown reaches 13, a buy signal is triggered. (The opposite applies to sell signals.) Put more simply, his analysis looks for both overbought and oversold signals.
In an analysis provided exclusively to MarketWatch, DeMark says lasting damage has been done because bitcoin has fallen more than 50% from its peak. In prior declines, bitcoin held the 50% retracement levels.
See earlier story: The technician who called the 2020 market bottom says a ‘shocking rally’ is in store
“Typically, structural long term damage is done to an uptrend when a retracement exceeds 56%,” says DeMark, the founder and CEO of DeMark Analytics and a consultant to hedge-fund manager Steven A. Cohen. “Such breakdowns bespeak a high probability recovery to the all-time bitcoin highs will require many years, if not decades, to accomplish.”
As a comparison, it took 25 years for stocks to exceed the prior September 1929 high.
But like the stock market after 1929, there could be a rally. “This does not negate the prospect of up to 50-56% recovery over upcoming months which implies bitcoin rally back to $40,000-$45,000.”
Depending on which timing model is applied, bitcoin recorded buy countdown 12 or 13 on Saturday morning. “Since this was accomplished over a weekend and a 7 day chart there remains modest risk of two lower lows and closes than Saturday levels next week. Regardless once there is a close above the close 4 days prior followed the next trading day with a higher high and close, the trend should reverse upside,” he says.
Investors might take some comfort in crystal-ball gazing by Bank of America, which uses history to plot the next bull market.
Steven Goldstein is based in London and responsible for MarketWatch’s coverage of financial markets in Europe, with a particular focus on global macro and commodities. Previously, he was Washington bureau chief, directing MarketWatch’s economic, political and regulatory coverage. Follow Steve on Twitter: @MKTWgoldstein.
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