As bitcoin breaks below $40,000, chart analysts don't see support for the price until much lower

Published Fri, Jan 21 202210:54 AM ESTUpdated Fri, Jan 21 20224:19 PM EST

Bitcoin fell to its lowest point since August on Friday as the broader markets continued their monthlong sell-off in risky assets, and analysts say it could fall even lower still. The price of the largest cryptocurrency by market cap fell as low as about $37,600 and had recovered some — but was still off about 10% — to $38,347.58 by Friday afternoon, according to Coin Metrics. "The decline is not a breakdown, but it brings bitcoin out of the consolidation phase that has characterized the chart for about three weeks in a bearish shift in short-term momentum," said Fairlead Strategies' Katie Stockton. "A breakdown requires consecutive weekly closes below support, in our work, and it would suggest that the correction is the start of a long-term bearish reversal." Earlier in the month bitcoin dropped below $40,000 , then its lowest level since September, amid the January risk sell-off. In November, it hit an all-time high above $68,000. Stockton noted that $40,000 was not a key resistance level for her but that she expects a near-term test of support at about $37,300. The secondary support level is closer to $30,000, she said. "Oversold conditions are in place from an intermediate-term perspective, lessening the likelihood of a confirmed breakdown, which we would assign a 30-70 probability," Stockton added. "However, we expect a 'hard' test of support given room to short-term oversold territory, meaning bitcoin is likely to spend some time below support before recovering." Next stop $30,000? Work by other analysts showed similar levels. Oppenheimer's Ari Wald had been using about $39,000, bitcoin's September 2021 low, as a support level, he told CNBC. That support has become resistance, he said, and the next big level is at about $29,000. Rich Ross from Evercore ISI also said he'd used $39,000 as a trading stop and sees the next key threshold at $30,000. "Absent intraday reversals consistent with a broad market reversal, which get us back above those levels into the weekend, I would consider any trading buys stopped out with downside," Ross said. "Should we reverse up and hold these levels it would be instructive in perhaps marking a low for both crypto and risk more broadly, but as we speak you cannot pound the table on that eventuality." The sharp move lower Friday took place during what has been the worst week in months for stocks. The tech-heavy Nasdaq Composite dropped into correction territory earlier in the week and now sits about 12% below its record. Both the Nasdaq and S & P 500 are on pace for their largest weekly losses since the week ended October 30, 2020. Investors have been shedding risky, growth-oriented assets throughout the month as they anticipate multiple rate hikes from the Federal Reserve this year to help fight inflation. Bitcoin's movements reflect these market moves and Fed signals more than ever , now that the cryptocurrency has gained popularity among short-term traders of traditional growth-oriented assets and is less correlated with crypto assets and altcoins. Investors have realized large losses during the sell-off, with net daily losses between $600 million and $875 million per day, according to Michael Rinko at Pervalle Global. But they pale in comparison to the more than $1 billion in losses realized during the May-June sell-off and the deleveraging in early December, he said. "There's a lot of fear in the market right now because many participants have never traded around a tightening cycle, let alone in an inflationary environment," he said. "In terms of the overall profitability of the market, we've essentially retraced back down to levels seen during the summer 2021 pullback, with ~33% of bitcoin's circulating supply now underwater." Data shows investors on average are selling at a loss, implying that it's traders without long-term conviction who are exiting the market, according to Noelle Acheson, head of market insights at Genesis. Some long-term holders are selling, but not at unusual levels, she said; and the number of bitcoin holders who haven't moved their assets in more than a year continues to climb, now making up almost 59% of the existing supply. "The continued accumulation hints at strong support at lower levels," Acheson said. "Bitcoin is likely to continue to behave like a risk asset, confounding those who believe in its value as 'digital gold.' However, as gold has been heading up since early December – presumably in response to growing market unease and geopolitical tension – we could start to see even more accumulation from longer-term investors for store-of-value reasons."

Bitcoin fell sharply after a sell-off of major U.S. stock indices. Bitcoin has been correlated closely to the price movement of the Nasdaq index.

Luke MacGregor | Bloomberg | Getty Images

Bitcoin fell to its lowest point since August on Friday as the broader markets continued their monthlong sell-off in risky assets, and analysts say it could fall even lower still.