Bearish Bitcoin fractal with 78% success rate flashes as BTC drops below $43.5K

Last week's drop in Bitcoin (BTC) that saw BTC price falling from $47,358 to $43,178 has sparked fears of an extended selloff.

Independent market analyst Nunya Bizniz highlighted a bearish fractal on Bitcoin's weekly charts concerning its 21-week exponential moving average (EMA).

In detail, the cryptocurrency has closed below the said support zone 18 times to date but retained its previous bullish bias only four times out of all—as shown by the dotted vertical lines in the chart below.

In the remaining cases, a close below the 21-week EMA led Bitcoin prices extremely lower, barring a fake bearish breakout in August 2015 that soon resulted in a "tremendous bull run," as the analyst noted.

Similarly, Bitcoin's recent break below the wave in May 2021 also crashed prices below $30,000 for the first time since Jan 2021. Nevertheless, the crossover did not result in a full-fledged bearish breakdown; traders bought the dip near $30,000 and led the prices back above $50,000.

But overall, the phenomenon of Bitcoin prices breaking below 21-week EMA caused extended selloff almost 78% of all times.

Bitcoin slips below 21-week EMA, again

Bitcoin closed the week ending on Sept. 26 at $43,178, alerting about its 19th historical decline below the 21-week EMA—which was around $43,502 at the weekly close.

While the fractals envisioned a downside outcome, a close look at the relationship between the 21-week EMA and 50-week simple moving average (SMA)—as shown in the chart below—noted that a potential bearish outlook would need further validation.

That is primarily because of traders' immediate reaction to the two moving averages, especially when the 20-week EMA (the green wave) closes below the 50-week SMA (the blue wave). The so-called Death Cross indicator has previously coincided with further declines in the Bitcoin market. 

For instance, the BTC/USD exchange rate slipped below its 21-week EMA (~$8,041) in the week ending on Jan. 29, 2018, but retained its upside bias until the green wave closed below the blue one. Later, the pair bottomed out near its 200-week SMA (near $3,187).

Similarly, the 20-50 MA death cross in March 2020 came only a week ahead of the infamous Covid-19 selloff, led by the Covid-19 led global market crash. Again, Bitcoin ended up closing near its 200-week SMA (~$5,512), only to bounce back toward new record highs in the sessions later.

Related: JPMorgan CEO says Bitcoin price could rise 10x but still won’t buy it

Therefore, it appears that Bitcoin's potential death cross between its 20-week EMA and 50-week SMA could trigger the next selloff crisis with the ultimate downside target sitting near the 200-week SMA (around $16,000).

At the same time, the Fibonacci retracement levels near $34,712 and $27,580 could keep the Bitcoin prices from getting toward the 200-week SMA. 

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