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Bitcoin price at risk of testing $19,500 support as prevailing trend points down, says Fairlead Strategies' Katie Stockton

Kitco News

(Kitco News) With Bitcoin down 15% on the day and trading around $23,100, the world's largest cryptocurrency could be at risk of re-testing the 2018 price peaks of below $20,000, according to Fairlead Strategies founder and managing partner Katie Stockton.

After failing to hold the $27,000 support level, Bitcoin is now at risk of re-testing a range between $18,300 and $19,500, Stockton told Kitco News on the sidelines of the Consensus 2022 conference that took place in Austin between June 9-12.

"That zone has twofold importance. A lot of people will remember the $19,500 level as being a former peak. And because the market's memory acts this way, if Bitcoin gets back there, you may see people say: 'I would love to get back in at that level.' Just think about the market psychology. That's what creates the phenomenon of resistance becoming support," she explained.

Bitcoin is in an oversold condition, but these trends can take months to shift, which is why Stockton is not projecting a quick recovery for Bitcoin.

"What we're trying to do with these indicators is to make sure that we're on the right side of the prevailing trend. And in the near term, that trend looks slower, in the intermediate-term, it looks lower, and in the longer term, it looks lower," Stockton said. "And that just is a reminder that risk is heightened, and rather than taking counter-trend positions, we feel more comfortable being on the sidelines."

Bitcoin has been caught up in a selling spree with the rest of the risk-on assets. Even before the hotter-than-expected inflation data came out Friday, there was a minor breakdown, and oversold conditions were not being corrected.

"Any risk asset that you look at is in a downtrend. This is why we have to contextualize the short-term rallies as being counter-trend," she noted. "When you see oversold conditions sustained, that means that you're in a downtrend."

Stockton's assumption going forward is that this downtrend in Bitcoin will hold until there is a meaningful momentum to change the narrative. But even when that occurs, the shift will be slow and dominated by extensive sideways trading.

"I suspect that that will occur not in a dramatic fashion but rather after a basing phase. A decline of this strength and magnitude doesn't tend to end quickly or easily. It usually is a process. And that process is characterized by an initial support discovery, but then often a series of re-tests of that support, which overall may end up looking more like a sideways trading range before Bitcoin and others can advance from that posture," she described.

As long as Bitcoin gets caught up in such volatile price swings, it will be difficult to suggest that the cryptocurrency is an asset that is closer to gold, Stockton added.

"Gold has outperformed year-to-date, and that's normal when the equity market is going lower. And obviously, we have not seen the same from Bitcoin or cryptocurrencies. We are certainly seeing gold stay more true to its safe-haven type of qualities. And that's even though gold hasn't really been a source of momentum either," she said.

However, Bitcoin could expand its risk-off characteristics as it matures and gains more institutional exposure. "As it matures more from a fundamental perspective, that's when you could expect that it takes on its own characteristics in a way that I feel it hasn't done. I think that with its maturity, you'll see more institutional adoption of Bitcoin," Stockton said.

Stockton's Fairlead launched an ETF called TACK Fairlead Tactical Sector ETF this spring, with the primary goal of leveraging the sector's relative strength. And because of the current risk-off environment, the ETF holds more than a 20% position in gold.

"We start with SPDR funds. But then, when the market dictates, it will move into a combination of short-term Treasuries, long-term Treasuries, and gold. And the gold piece is achieved via the GLD ETF. And TACK is holding a more than 20% position in gold right now. It's very risk-off in the way it's positioned," Stockton pointed out.

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