According to analysts at Wolfe Research technical patterns and investor sentiment could set the stage for another period of weakness. Bitcoin (BitfinexUSD) has already fallen 20% year-to-date.

Wolfe analysts Rob Ginsberg and Reed Harvey argue that market participants remain cautious after repeated failed rallies in recent months. Bitcoin has struggled to maintain its upward momentum despite several rebound attempts, heightening doubts about the sustainability of any short-term recovery.

"We don't mean to suggest carrying past traumas into seemingly healthy new relationships... but it's hard to forget past betrayals," the analysts wrote, referring to Bitcoin's tendency to lure investors back into rallies that then fade. The chart shows Bitcoin trading within a series of narrowing consolidation patterns following a sharp decline earlier this year. While the cryptocurrency has attempted to stabilize, Wolfe argues that the structure is reminiscent of previous setups that ultimately resolved themselves lower.

Analysts pointed to a similar pattern that formed in January. Back then, Bitcoin appeared to stabilize within a consolidation range before breaking lower again, triggering another leg of declines.

"In January, we saw the price reach a two-month high. It seemed a crisis had been averted and we were heading back above $100,000," the analysts wrote. "Oh, what wishful thinking that turned out to be."

Now, a comparable pattern appears to be unfolding. Bitcoin recently tested its 50-day moving average—a level that often serves as a key technical signal for momentum traders. Wolfe says a move above this threshold could temporarily attract buyers. But analysts warn that such a rally could be short-lived unless broader risk sentiment improves.

"Our feeling is that if it breaks, many will jump back on board, only to be dumped again," they said.

Trading in Tandem with Software

Wolfe's broader concerns extend beyond Bitcoin itself. The firm notes that cryptocurrency markets tend to move in tandem with speculative tech stocks, particularly software companies, which dominate growth-oriented equity portfolios.

"What does this lead us to? Well, first, software, with which Bitcoin trades almost in tandem, has already stalled and is retreating, as its relief rally proves short-lived," the analysts wrote.

At the same time, Wolfe sees few macroeconomic forces currently providing strong support for risk assets. Recent pressures related to inflation, credit conditions, and the strength of the US dollar may be easing, but analysts say there's still no clear catalyst to justify a sustained bullish move.

"Whether it's inflation, credit, a stronger dollar, or a lack of genuine capitulation in the equity market, we don't think any of these bode well for Bitcoin's future path," the analysts concluded.