Bitcoin could fall another 40% if it fails to hold the key support level of $27,000, Fairlead's Katie Stockton says

• Bitcoin's sharp decline amid the Terra implosion led the cryptocurrency to test an important support level at $27,200.
• If bitcoin decisively breaks that support level, the crypto could drift 40% lower to $18,300, Katie Stockton of Fairlead Strategies said.
• "The recent breakdown below the weekly cloud [support] reflected negative intermediate-term momentum," Stockton said.

$4 months-long decline has led the cryptocurrency to recently test and so far hold an important support level at $27,200, $4 Katie Stockton highlighted in a note on Monday.

The decline in bitcoin and other cryptocurrencies accelerated over the past week following $4, an algorithmic based stablecoin that broke the buck and fell more than 90%. The failure of that stablecoin $4 and drove a brief dip in bitcoin to as low as $25,401.

Bitcoin has since recovered and is trading above the important psychological price point of $30,000 as of Tuesday morning.

But if the crypto fails to decisively hold $27,200 as support, defined as two weekly Friday closes below that level, then the cryptocurrency could fall another 40% from current levels to $18,300, Stockton said.

"The recent breakdown below the weekly cloud [support] reflected negative intermediate-term momentum, which increases risk beyond the near term," Stockton said. Both the intermediate-term and long-term momentum trends for bitcoin are currently categorized as "bearish" by Stockton, while its short-term momentum trend is "neutral."

"Short-term oversold indicators support further stabilization following the successful test of support, based in part on the DeMARK Indicators," Stockton said.

If bitcoin can stabilize and rise amid a risk-on rally, Stockton has her eye on potential resistance around the declining 50-day moving average, which currently sits around $39,000. That would represent potential gains of 30% if bitcoin tests that resistance level, which is falling lower and lower by the day given the ongoing downtrend in the cryptocurrency.

Bitcoin has dropped 57% from its record high of about $69,000 in November, erasing $700 billion in market value, according to data from CoinMarketCap. Altogether, the total crypto market value has fallen from a peak of around $3 trillion to $1.3 trillion today.

"Risk is heightened from a long-term perspective, noting the monthly MACD is on a 'sell' signal and the monthly stochastics are not yet oversold," Stockton concluded.