It has been a rough week for the cryptocurrency market, primarily because of the Terra ecosystem collapseย and its knock-on effect on Bitcoin (BTC), Ethereum (ETH) and altcoin prices, plus the panic selling that took place after stablecoins lost their peg to the U.S. dollar.
The bearish headwinds for the crypto market have been building since late 2021 as the U.S. dollar gained strength and the United States Federal Reserve hinted that it would raise interest rates throughout the year.
According to a recent report from Delphi Digital, the 14-month RSI for the DXY has now โcrossed above 70 for the first time since its late 2014 to 2016 run up.โ
This is notable because 11 out of the 14 instances where this previously occurred โled to a stronger dollar ~78% of the time over the following 12 months,โ which points to the possibility that the pain for assets could get worse.
On average, the DXY gained roughly 5.7% after its RSI rose above 70, which from May 13โs reading โwould put the DXY Index just shy of 111, its highest level since 2002.โ
Delphi Digital said,
โAssuming the correlation between the DXY and BTC remains relatively strong, this would not be welcoming news for the crypto market.โ
Bitcoin is at a key area for price bottoms
Taking a bigger picture approach, BTCย is now retesting its 200-week exponential moving average (EMA) near $26,990, which has โhistorically served as a key area for price bottomsโ according to Delphi Digital.
Bitcoin is also continuing to hold above its long-term weekly support range of $28,000 to $30,000, which has proven to be a strong area of support throughout the recent market turmoil.
While many traders have been panic selling in recent days, Pantera Capital CEO Dan Morehead has taken a contrarian approach,ย noting, โItโs best to buy when [the] price is well below trend. Now is one of those times.โ
Morehead said,
โBitcoin has been this โcheapโ or cheaper relative to trend only 5% of time since Dec 2010. If you have the emotional and financial resources, go the other way.โ
A word of caution was offered by Delphi Digital, however, which noted that โthe best opportunities or “deals” in the market are not around for long.โ
Since BTC has been trading in the $28,000 to $30,000 range for an extended period of time, โthe longer we see price build in these areas, further continuation becomes more likely.”
If further decline occurs, the โweekly structure and volume structure support at $22,000 to $24,000โ and the โ2017 all-time high retests of $19,000 to $24,000โ are the next major areas of support.
Delphi Digital said,
โEarly signs of capitulation are starting to bleed through, but we canโt say weโre nearing the point of max pain just yet.โ
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
