Bitcoin
Bitcoin Weekly Outlook: Expect Mild Corrections Ahead of Holiday Period
At 22.49 percent higher, Bitcoin logged its best week since April 2019.
The benchmark cryptocurrency ascended to its lifetime record level of $24,300, up 22. as traders assessed its growing prominence as an emerging safe-haven alternative among institutional investors. The sentimental shift towards Bitcoin occurred as some of the most traditional hedging assets reflected a medium-term bearish outlook. That included the US dollar.
Last Week
Factors including Brexit optimism, the coronavirus vaccine rollout, the US Federal Reserve’s dovish outlook, and hopes for a new US stimulus bill continued to pressure the greenback lower. Mirroring its weakness, the US dollar index, which tracks the dollar’s performance against a basket of foreign currencies, slipped below 90 for the first time since April 2018.
Many traders raised their bids for Bitcoin while anticipating that the dollar’s value would decrease further in the medium-term.
They treat the cryptocurrency as an anti-fiat asset, given its accurate negative correlation with the greenback since March 2020’s global market rout. BTC/USD has surged by more than 500 percent since then. The US dollar index, on the other hand, has fallen by up to 12.68 percent.
US dollar index shows signs of modest recovery from its yearly low. Source: DXY on TradingView.com
Following its last meeting of 2020 on Wednesday, the committee’s chairman Jerome Powell committed to continuing their bond-purchasing program. Meanwhile, the US Congressional leaders reached a deal on their $900 billion stimulus package. They both add more bearish pressure on the US dollar heading into the new week.
That, in turn, could prompt Bitcoin traders to—at least—hold gains above recently-established daily support levels above $23,000.
Bitcoin Outlook Detailed
Fundamentally, the new week looks quite on macroeconomic levels. There are no significant events and data releases on the economic calendar that may influence an average Bitcoin trader to go drastically long/short on his/her trade. The upcoming Christmas holiday season is likely to keep most “whales” busy as well.
But technically, Bitcoin may attempt to correct its “overbought” levels, as seen through its weekly Relative Strength Indicator. As of now, the level is near 88, which reflects an overheated market. The first short-term support is near $23,318. Breaking below the said level would have Bitcoin test the following supports (in succession): $22,329, $21,252, and $20,000.
Bitcoin supports this week. Source: BTCUSD on TradingView.com
Meanwhile, the prospects of more dollar declines—especially on the stimulus news—could have Bitcoin RSI climb further into the overbought territory. That would mean another retest of its all-time high, followed by the possibility of touching more record highs into unchartered territory.
Bitcoin has had an explosive breakout year as a maturing financial asset,. The cryptocurrency is finally being considered by institutional investors for the first time, during a year that will go down in history for unprecedented money printing.
The asset’s hardcoded digital scarcity is a primary driver of its boom and bust cycles, and in the year following each block reward halving, magic happens. With the new year right around the corner, here’s a look back at past crypto market cycles for a glimpse at what to expect from Bitcoin in 2021.
Looking Back At Historical Bitcoin Market Cycles
All markets are cyclical and go through distinct phases of bear and bull trends. These cycles can take place over the course of decades, or a handful of years. In crypto, cycles often move faster than traditional assets due to the always-on, 24/7 market.
But because Bitcoin is just over a decade old, there are only a couple of boom and bust cycles at which to glean any useable data. In technical terms, when Bitcoin breaks its former all-time high, the new bull market is on.
Fundamentally, this occurs every four years following the asset’s block reward halving. This built-in mechanism slashes the supply of BTC in half at a time when demand is beginning to resume.
RELATED READING | NY TIMES BESTSELLING AUTHOR: BITCOIN S2F IS FLAWED, NOT MATHEMATICALLY SOUND
The combined effect of suddenly diminished supply and growing demand throws buying and selling equilibrium so out of balance that price appreciates exponentially.
2020 has acted as the ideal example of the impact each halving can have on the market. Bitcoin went from “a fad” to full-blown FOMO in less than nine months, all because supply and demand is so favorable to positive ROI.
And while 2020 was definitely a breakout year for a bullish Bitcoin, it is next year that will make a new wave of Bitcoin billionaires.
Halving years are marked in blue. In the year following, the cryptocurrency goes full parabolic | Source: BLX on TradingView.com
Move Over 2020, Why 2021 Will Be The Cryptocurrency’s Best Year Yet
Glancing at the chart above and it’s shocking to see just how high Bitcoin has climbed in twelve years. During the twelve years of trading, the cryptocurrency has had three distinct halvings, cutting the reward miners receive from 50 to 25 BTC, then from 25 to 12.5 BTC, to the current 6.25 BTC.
Each time this happens, demand begins to so drastically outweigh the limited supply, the asset goes parabolic and rises exponentially.
RELATED READING | BITCOIN BULL RUN IS OFFICIAL ACCORDING TO MONTHLY RSI, MORE BULLISH THAN 2017
In the two post-halving years on record, the first resulted in well over 6,000% ROI and the second just under 2,000% ROI. What could 2021 bring crypto investors?
Another 2,000-6,000% return isn’t likely simply due to the law of diminishing returns, however, even a 400% increase from current levels would result in a price of $125,000 per BTC.
Featured image from Deposit Photos, Charts from TradingView.com
A downside correction in the Bitcoin market at the beginning of this week may prepare a fresh run-up towards $30,000, says Teddy Cleps.
The independent market analyst tweeted a technically bullish set up on Monday, projecting the Bitcoin price in a trend continuation pattern. In the chart, traders can observe the cryptocurrency consolidating inside a Triangle-like structure following its parabolic upside move above $28,000 on Sunday.
Bitcoin bull run setup, as presented by Teddy Cleps. Source: BTCUSD on TradingView.com
It appears like a potential Bullish Pennant, which could technically send the Bitcoin price higher by as much as the rally that preceded its formation — aka “flagpole.” It is around $3,652 long, as measured by Bitcoinist. Therefore, the bitcoin price has a great potential of hitting $30,000 should it break the Pennant to the upside from its apex.
“The rejection from $28,000 was just telling us where the next triangle started,” said Mr. Cleps. “Let it consolidate, let it reach an apex, let it break out, and then show us the way to $30,000.”
Fundamentals
The bullish analogy surfaced as Bitcoin achieves one record high after another. The cryptocurrency reached a new one of $28,387 on Sunday as traditional markets remained close for the Christmas holiday. Meanwhile, the aggregated open interest of Bitcoin Futures hit another record level of $8.9 billion, further reflecting the market’s enthusiasm.
Bitcoin Futures aggregated open interest across all exchanges. Source: Skew
Robbie Liu, a researcher at OKEx cryptocurrency exchange, noted that Bitcoin expects to sustain its profits on booming institutional adoption. Typically, the leading crypto corrects lower after a rally as traders’ focus shifts on its rivals, causing a so-called “altcoin rally,” which is no longer the case.
Mr. Liu referred to Donald Trump’s decision to sign a bill that would pave the way for a $900 billion stimulus package to reach millions of Americans. Coupled with the Federal Reserve’s dovish policies, it would increase further downside pressure on the US dollar. The greenback is already down by more than 12 percent YTD.
“The three major U.S. stock indexes rose for the second day in a row before the Christmas holiday,” said Mr. Liu. “Meanwhile, stock index futures saw gains today after President Trump signed a new $900 billion stimulus package, and we can expect some of that sentiment to boost Bitcoin.”
Warnings for Bitcoin Bulls
As the bullish euphoria sustains, some analysts have also suggested traders prepare for a short-term downside correction — that could invalidate the Bullish Pennant setup above.
Mark Principato, the executive director at Green Bridge Investing, stated that Bitcoin’s current upside moves “are a sign of speculative froth and the herd mentality.” The analyst stated that the cryptocurrency could still fall towards $23,000, where traders can consider opening a long position.
“Please understand, when the market looks its best, that is often the WORST time to enter,” he explained. “Avoid the hype and all of the “logic” and reasoning as to WHY this move is taking place. It will not enforce good habits in the long run.”
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