Investing.com -- Wolfe Research maintains its bearish outlook on Bitcoin after the cryptocurrency fell 20% following a rejection at its 200-day moving average. The firm stated it anticipated this decline, viewing the recent price improvement as a bear flag pattern.

Bitcoin now trades in oversold territory after failing to sustain a move above its 200-day average. The cryptocurrency has disconnected from technology stocks and broader risk assets, according to the research firm.

Wolfe Research noted that Bitcoin no longer functions as an inflation hedge and has declining real-world applications. The firm suggested that artificial intelligence and semiconductor stocks may be absorbing excess market liquidity, with investors preferring semiconductor investments that have tripled in value within weeks.

The research firm continues to follow Bitcoin's four-year cycle pattern for its forecast. Based on an average peak-to-trough period of 381 days and an average drawdown of 79%, Wolfe Research projects Bitcoin will bottom below $40,000 in late October 2026.

The firm stated these targets remain on track despite current market conditions where major U.S. stock indexes have reached record highs for several weeks, led by technology sector gains.