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Bitcoin's 'Ichimoku Cloud' Suggests Deeper Drop Toward $24K: Technical Analysis
Ichimoku Cloud, created by Japanese journalist Goichi Hosada in the 1960s, is widely used to gauge momentum and trend strength.
Updated May 25, 2023, 7:27 p.m. Published May 25, 2023, 7:13 a.m.
Bitcoin's recent price slide may have legs, according to technical analysis by alternative asset management firm Valkyrie Investments.
The leading cryptocurrency by market value has declined by 10% to $26,200 this month, thanks to renewed hawkish Fed bets, the recovery in the dollar index, and the lingering U.S. debt ceiling uncertainty.
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Per Valkyrie, a further decline toward $24,000 may be seen as bitcoin's daily chart Ichimoku cloud, a momentum indicator, has flipped bearish.
Japanese journalist Goichi Hosada created the Ichimoku Cloud in the late 1960s. The indicator comprises five lines: Leading Span A, Leading Span B, Conversion Line or Tenkan-Sen (T), Base Line or Kijun-Sen (K) and a lagging closing price line.
The difference between Leading Span A and B makes up the cloud, which is used to identify broader trends. A bullish cloud is green, while a bearish one is red. Crossovers of Tenkan-Sen, a nine-day price mid-point, and Kijun-Sen, a 26-day price mid-point, are used to identify short-term trading signals.
The chart below shows a green Ichimoku cloud, indicating a constructive broader outlook. However, the cryptocurrency's price has recently fallen back into the cloud, and the Tenkan-Sen (blue line) has crossed below the Kijun-Sen (red line), confirming a bearish crossover.
"This suggests an ongoing high-timeframe bullish trend with a decline in bullish momentum and the potential for near-term retrenchment," analysts at Valkyrie, led by Chief Investment Officer Steven McClurg, wrote in a note to clients on Tuesday.
The early March bitcoin pullback ran out of steam at the lower end of the cloud, with the subsequent bounce taking prices to $31,000 by mid-April.
"A price close within the cloud is suggestive of losing cloud support and triggers the possibility of traversing to the opposite [lower] edge of the cloud. In this case, an Edge-to-Edge trade would bring prices to around $24,000," analysts added.
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