Bitcoin could fall another 33% if it breaks below its key $40,000 support level, Fairlead's Katie Stockton says

• Bitcoin could be on the verge of a significant decline if it fails to hold $40,000 as support.
• That's according to Katie Stockton of Fairlead Strategies, who identified $27,200 as secondary support for bitcoin.
• "Long-term momentum has deteriorated this year, contributing to recent volatility," Stockton said.

Bitcoin could see additional downside if the cryptocurrency fails to decisively stay above a key support level at $40,000, Fairlead Strategies' Katie Stockton said in a Monday note.

According to Stockton, if bitcoin breaks below $40,000, the cryptocurrency would likely trend lower to secondary support at $27,200, representing potential downside of 33% from current levels.

Bitcoin briefly fell below $40,000 on Monday before recovering the key support level on Tuesday. That temporary break below $40,000 on Monday is not an issue, as Stockton likes to wait for a decisive break below the support level to avoid any head fakes.

"We like to see an intermediate term level like this $40,000 hold on a consecutive weekly closing basis, so that's giving it a lot of wiggle room....we just want to make sure we don't see consecutive Friday closes below that $40,000 because it is such a major level and we're willing to kind of wait that out," Stockton told CNBC on Tuesday.

If bitcoin manages to hold above its key support level, Stockton sees potential for the popular cryptocurrency to trend back towards its former December resistance level of around $51,000, representing potential upside of 27% from current levels. And Stockton is in the camp that a relief rally is likely for bitcoin later this week.

"The DeMARK Indicators are likely to flash a 'buy' signal on Wednesday, which increases the likelihood of a bounce off support, so we stay with out bullish short-term bias," Stockton explained, adding that bitcoin is in a gradual intermediate-term uptrend after it made a higher high in March.

"Long-term momentum has deteriorated this year, contributing to recent volatility, but the monthly stochastics suggest the January low was meaningful," Stockton said.

If bitcoin fails to hold $40,000 and trends lower towards $27,200, that would represent a multi-year low for the cryptocurrency and lead to a sharp deterioration of its short, mid, and long-term momentum trends.