Where Does BTC Go From Here?

Every Wednesday, we give our take on current crypto market conditions, provide performance updates for the DeFi20 Index, and look at token-specific charts that catch our eye.

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BTC is running into heavy resistance – just as expected.

Just as April was the “perfect storm” of bullish technical indicators for BTC, we’re now up against a combination of strong resistance levels – all within the $83-85k range.

As I’ve outlined in recent weeks, there are three factors at play here from a technical perspective:

Here’s how these factors line up on the monthly BTC chart:

Additionally, we can get an even better look at the 200 day MA and prior support line on the daily chart. As you can see, the price was recently rejected at the 200 daily MA:

At the same time, the MA pattern in BTC’s daily chart is still firmly bullish, with the bottom of the range (purple MA) sitting at ~76K, right near the monthly open – this is a key support level.

Historically, the 200 daily MA gives the strongest resistance when it’s in a downtrend (as it currently is). This has happened several times throughout BTC’s history.

In July and August 2014 (red circle) the price struggled to hold above it before ultimately going into a strong decline for the rest of the year. It then broke above it temporarily in June 2015, before the “true” breakout in October (both marked by green lines).

This was also the case in mid-late 2018, as the price failed to break above the line in July (red line), and didn’t properly test it again until April 2019 (green line).

The most recent example of this trend occurred in March 2022 (red line), and the price didn’t recover above the line until January 2023 (green line).

The drawdowns experienced by BTC after failing to break above the 200 daily MA were severe: 

In this case, BTC topped out at roughly $82.2K. If it were to go through a similar post-failure decline, the price would bottom out between $23.8K and $30K around the end of the year; from its high of ~$126K, this would be a total drawdown of 76-82%.

That sounds pretty scary – but will it happen again? 

I believe this level of decline from here is very unlikely. While nothing is impossible, I’d give it a sub-10% chance.

Using a monthly chart, we can look at the long-term view of each 200 daily MA failure – marked by the red lines in the chart below:

There are three key ways that this setup is different (excluding the fact that we got the historically bullish indicator in April)

In the three prior cases, the rejection occurred while the 200dma was well above the 13m EMA, which suggests that BTC had greater downside potential. By the time the 200dma crossed below the 13m EMA, BTC was already near its long-term bottom.

Unlike previous price patterns, BTC recently put in a 4-month high. Specifically, the monthly candles for February and April had similar open and close levels, and May has broken above both. This marks a notable breakout, where BTC has flipped the $76-79K range from resistance into support. 

If BTC closes the month around its current level, May will mark its 3rd straight positive month. This signifies persistent strength that was not present in the prior scenarios.

As I’ve noted pretty much every week for the past month and a half, the bullish indicator we got in April is just too strong to give up on yet. The following chart adds the months where BTC gave similar bullish indicators, shown by the yellow and green lines

In all 3 prior cases, this bullish indicator flashed very close to the BTC’s long-term cyclical bottom – months after the 200dma rejection. In this case, the 200dma rejection is happening after the bullish indicator flashed.

And in all 3 prior cases, major rallies followed over the following 2-3 years:

You can find more details on this bullish indicator in the April 1st issue of Mid-Week Market Check.

As a caveat, I have to mention that the market doesn’t inherently care about technical patterns. If a black swan-type event happens, risk-on markets (and even risk-off) will almost certainly be affected. However, the pattern that gives me my current bullish bias on BTC is simply too promising for me to ignore. So, while I expect the convergence of these resistance levels to stall BTC’s current rally for potentially several weeks, I believe that it will ultimately break out before losing key support levels.

For all these reasons, I’m willing to bet that this time plays out differently than the prior 200dma rejections. This is a major reason why I was willing to put $10K into the DeFi20 Index – and do so for the public to see via the Machines & Money Portfolio (EVM positions | Solana positions).

Now, let’s take a look at how the DeFi20 Index has performed since last week’s update.

CFG 

CFG has been one of the top performers in the DeFi20 Index; during the first 8 days of May, it had rallied over 65%! 

I noted the pre-rally setup on April 29th, and the rally took it to a key resistance area spanning from $0.346 to $0.392, marked by the red lines.

While it wouldn’t be unusual to see price come down a bit in the short term, this resistance level is critical – if CFG puts in another higher low, before ultimately clearing the resistance range (likely later this month or first half of June), it will confirm that this uptrend is sustainable in the mid-long term.

MORPHO 

MORPHO is also fighting to break through a key resistance range, marked by the red lines in the chart below.

If it continues to consolidate within this range, and not fall victim to a strong break to the downside, MORPHO will ultimately flip it into a support range and use it to form a base for its next leg higher.

EUL 

Last Friday (marked by the second green line in the chart below), I noted in our Telegram group that EUL was potentially setting up to break higher. Last Wednesday has successfully held as a higher low thus far – and if it continues to do so, EUL has a chance to break above $1.70 to put in another higher high.

If this scenario plays out, there’s a lot of room to run; EUL’s next resistance will likely be the 200dma (white line), which is currently sitting just below $2.50. If EUL breaks out, it could easily break above $2, which would be over 100% higher than our sub-$1 entry in the Machines & Money Portfolio!

FF 

Barring a massive 1-day spike on April 10th (one day after we added it to the Portfolio), FF has been in a clear downtrend since its launch. However, it appears to finally be initiating an attempt at a trend reversal with its recent breakout above the MA range.

While this rally hasn’t created an uptrend in the MA range yet, it’s a good start. After a weak attempt to rebound around the base of the April 10th spike candle, the price has broken back above the level and continued to rally. 

Next, we’ll look for the MA range to flip to bullish, and the price of FF to begin putting in higher lows and higher highs.