Bearish Signal and Historical Precedents
Bitcoin's (BTC) SuperTrend indicator has issued a "sell" signal on its weekly chart, a development that has historically preceded significant bear markets. This signal appeared when the indicator reversed from red to green and moved above BTC's price last week. The SuperTrend indicator, which tracks BTC's price trend similarly to moving averages and incorporates the average true range in its calculations, helps traders identify market trends.
The confirmation of the SuperTrend's "sell" signal coincided with the BTC/USD pair closing below the 50-week moving average (MA) on Sunday. This specific scenario has been a historical marker for the conclusion of bull markets. In the past, similar confirmations from these two indicators were followed by substantial price drops, including 84% in the 2018 bear market and 77% in the 2022 bear market.
Crypto analyst Bitcoinsensus noted in an X post on Monday, "The Weekly SuperTrend indicator has flipped red for the first time since January 2023 (end of the bear market)." The analyst further commented, "This means that, although not a certainty, we could be seeing early signs of a bear market starting to show."
If historical patterns hold true, Bitcoin could experience a significant downward movement, potentially falling to as low as $75,000. This potential decline could be influenced by reduced demand from Bitcoin treasury companies and ongoing outflows from US-based spot ETFs.
Crypto Sentiment Indicates Further Pain Ahead
The Crypto Fear & Greed Index has fallen into the "extreme fear" zone, registering a score of 11, its lowest point since February. Analyzing Bitcoin's price action during previous periods when the index was at similar levels reveals two potential future scenarios for the BTC/USD pair.
In the first scenario, Bitcoin might experience further declines before rallying to new all-time highs. This pattern was observed in 2021 when the index fluctuated between "extreme fear" and fear throughout May, June, and July. During that period, the price dropped an additional 40% before eventually reaching new all-time highs of $69,000 in November 2021.
"There’s a good chance that more immediate-term pain lies ahead, a reversal will likely hit in the next 2-3 weeks. Lowered sentiment does not take new all-time highs off the table in the medium term."
Analyst Milk Road stated this in a Wednesday newsletter, adding that "Lowered sentiment does not take new all-time highs off the table in the medium term."
The second scenario suggests that Bitcoin could be entering a full-blown bear market. This was exemplified in May 2022, when the Crypto Fear & Greed Index remained in the "extreme fear" zone until July. This period represented the most severe phase of the 2022 bear market, during which Bitcoin plummeted to $15,000 from its previous all-time high of $69,000.