(Bloomberg) -- Bitcoin is beginning to test a closely watched level that some analysts suggest could prove to be a key turning point after this year’s surge in prices.
The largest digital currency is trading around its 50-day moving average, with Paul Hickey of Bespoke Investment Group noting that the level to watch is $27,500. If the level doesn’t hold, prices risk declining.
Bitcoin advanced to $28,776 at 10:30 a.m. in London on Wednesday. It has jumped about 74% this year, though the positive momentum has stalled in the two weeks since the cryptocurrency breached $30,000 for the first time since June. Other tokens such as Ether were also little changed, while smaller tokens like Solana and Polygon were slightly lower on Tuesday.
While prices have rallied this year, Bitcoin is still trading at less than half the record high of almost $69,000 reached in November 2021. A series of industry scandals and bankruptcies last year has lessened the appeal of digital assets to many investors.
“We have seen a decrease in volume, market depth and liquidity, translating into higher volatility,” Ambre Soubiran, chief executive officer of crypto data provider Kaiko, said during a Bloomberg TV interview. “That for now is an indication that even though there’s a positive sentiment around the price of those assets, market is not back to their pre-2022 crisis amount in terms of volume, and market depth, most importantly. “
Multiple narratives helped fuel Bitcoin’s surge — including how the asset is meant to act as an inflation hedge and how it is supposed to circumvent vulnerabilities found in traditional banking systems. For Bespoke’s Hickey, shifts in the relative strength of Bitcoin tend to coincide with shifts in the S&P 500, rather than leading the moves in the equity market.
“Comparing the performance of the S&P 500 to the relative strength of Bitcoin versus the S&P 500 shows a loose but unconvincing link between the two series,” he wrote in a Tuesday note. “Although Bitcoin and the crypto space have little to do with the stock market, some traders monitor the space on the belief that they provide a good barometer of overall risk appetite.”
The ratio of Bitcoin to the S&P 500 peaked about two months before the peak of the S&P 500 in late 2021 up to early 2022. But when the benchmark gauge hit its October nadir, Hickey pointed out that it took another two months before the relative strength of Bitcoin began to pick up steam.