This Is Why Bitcoin’s Big Rally Is Not Over

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This Is Why Bitcoin’s Big Rally Is Not Over

Resistance? Correction? It’s A Good Thing

Bitcoin crossed the $12,000 threshold earlier this week in a move that can only be called Ballistic. The world’s leading digital currency gained more than $2,000 in less than 24 hours, moved up to set a new 17 month high, but was not able to hold the gains. Not all of them anyway. The move up to $14,000 was met with resistance but that is a good thing. The market needs these periodic sell-offs to weed out the weaker hands, let folks take profits, and allow the next round of buyers to build up some pressure. The correction from $14,000 was sharp and swift, it may lead to a deeper correction, but looking at the charts I can say definitively that the big rally in Bitcoin is not over.

The technical picture is about as robust as it could be. The breakout itself was very strong and that strength is seen in the indicators. The MACD indicator in particular is showing some strength that points to higher prices in the not too-distant future. The MACD peak associated with the move to $14,000 is an extreme peak and convergent with the rally. The extreme peak means it is the largest MACD peak in well over a year. This is an indication of market commitment, over the past year the BTC market has been in an uncertain consolidation and trending at low levels. Now the market is bullish and back in force.

The convergence of the MACD peaks, the fact they are getting higher as the BTC price moves higher, is perhaps the most telling factor of all. This condition shows that not only is the BTC market bullish, it is getting more bullish with each move higher. The combination of convergence and extremity points to a market that is bullish, getting stronger, and the most committed to price direction it’s been since the 2020 bull market.

So, what does this all mean for Bitcoin, the Bitcoin market, and making profits? It means now is a good time to buy, especially if you are a long-term holder. Shorter-term traders may want to target down-days to get in but, so long as you are buying below the $14,000 level I see potential for 42% gains over the next few months, at least. Over the next few weeks it will be important to track prices to see what kind of pattern emerges. The market has been rallying hard, if it were to produce a recognizable consolidation pattern my 42% target is low, very low. A consolidation and continuation pattern at this level, with $14,000 as the resistance point, could lead to an explosive rally that will surpass the $20,000 level with ease.

Bitcoin’s Latest Rally Is Missing One Important Thing

Bitcoin is surging again, with the world’s most widely traded cryptocurrency rising the most in a month on Tuesday as it came close to breaking past $9,000.

There’s just one thing missing from this Bitcoin rally: “Actual Bitcoin usage is particularly underwhelming,” Mati Greenspan of Quantum Economics wrote to newsletter subscribers Wednesday.

After spending the start of 2020 looking like it was stuck at about $4,000, Bitcoin rallied over the summer, hitting about $12,000 before giving up a big chunk of those gains. There was another big rally in Bitcoin in the fall, which faded as the new year approached.

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Bitcoin is now in the midst of what is effectively its third revival in less than 12 months, with the cryptocurrency up more than 11% last week and about 10% on Tuesday alone. It has gained 1.3% in the past 24 hours to $8,817.56. (It peaked at $19,891 on Dec. 17, 2020.)

What hasn’t risen, Greenspan pointed out, is the volume of recorded transactions that involve Bitcoin. “The transactions per second rate has leveled off at about 3.6, which is not bad but the amount of money being transferred seems pretty low compared to what we’ve grown accustomed to seeing during these rallies,” he wrote.

Indeed, the total value of Bitcoin transactions is now below $1 billion, less than half the value of transactions that were logged during the summer rally.

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Bitcoin’s Option Market Sees Low Chance of Post-Halving Rally

Omkar Godbole

Bitcoin’s Option Market Sees Low Chance of Post-Halving Rally

Bitcoin (BTC) is unlikely to get bid up after the May 2020 mining-reward halving, based on the way the cryptocurrency’s options are valued.

The top cryptocurrency is currently trading around $8,800, representing an 20 percent gain on a year-to-date basis.

Meanwhile, the options market is reporting the probability of prices holding above the $8,000 mark by the end of September at coin toss levels, according to crypto derivatives research firm Skew.

To put it another way, option traders are not sure if bitcoin will trade above the $8,000 mark four months after reward halving – supposedly a price-bullish event. The probability stood at 65 percent a week ago when bitcoin was trading near $10,000, Skew’s co-founder and chief operating officer, Emmanuel Goh, told CoinDesk.

An option is a derivative that trades contacts between buyers and sellers, giving the purchaser the right but not the obligation to buy or sell the underlying asset at a specific price on or before a specific date. A call option gives its owner the right to buy something while a put option gives the right to sell.

Bitcoin is set to undergo its third mining-reward halving sometime in May 2020. As the name suggests, the rewards per block mined will be halved from current 12.5 BTC to 6.25 BTC. The process is repeated every four years and is aimed at curbing inflation in the cryptocurrency.

Conventional wisdom, at least among bitcoin analysts, holds that the reward halving could create supply deficit and put bitcoin on the path to new lifetime highs above $20,000.

“In approximately 200 days (69 days unil the halving) buying [one] bitcoin will be out of the reach of 99.8 percent of the population of the earth,” Jason Williams, co-founder and partner at Morgan Creek Digital tweeted on Sunday.

Historical data show the cryptocurrency rallied sharply in the years following the previous halvings, which took place in 2020 and 2020.

While halving may repeat history by rallying in 2021, the options market indicates a low probability of a big move higher this year.

Probability of Bitcoin Being Above $X per Maturity Source: Skew

The market sees a 3 percent chance of bitcoin setting a new high above $20,000 by the end of June. Meanwhile, the probability of a rise to fresh record highs by the end of September currently stands at 6 percent.

In fact, the odds of the cryptocurrency refreshing market cycle tops (the high from the preceding bear market low) with a move above the June 2020 high of $13,880 by the end of June stands at merely 11 percent.

Meanwhile, the probability for a September expiry above $14,000 is currently seen at 16 percent.

The probabilities are calculated with the help of Black-Scholes formula, which is based on key metrics like call options’ prices, the current price of bitcoin, strike prices of the options, the risk-free interest rate and the time to maturity of the options.

Halving is not always bullish

Option market probabilities should come as no surprise to litecoin (LTC) investors, who saw the value of their holdings fall sharply following the reward halving, which took place on Aug. 5, 2020.

On that day, the cryptocurrency was trading just above $100. However, by December, the price of single litecoin had dropped below $50.

Its hash rate, or the computing power needed to validate transactions on the blockchain, also tanked by 70 percent in the five months to December, as reward halving and the subsequent drop in prices whitted away mining profitability. That forced small and inefficient miners to shut down operations or move on to mining other currencies.

Pre-halving rally?

Historically, bitcoin has set new market cycle tops in the calendar year of halving, but ahead of the event, according to Rekt Capital.

For instance, bitcoin’s bear market from the December 2020 high of $1,150, ran out of steam near $150 in January 2020. The cryptocurrency then rose to a high of $502 in November 2020, confirming a bullish reversal.

Prices then fell back to $365 in February 2020 before hitting a new cycle top $778 in June – a month ahead of the reward halving, which took place in July 2020.

The high of $778 reached in June 2020 was the highest price from the bear market low of $150, but was well short of the record high (at the time) of $1,153, reached in December 2020.

Similar price behavior was seen in the months leading up to the 2020 reward halving.

If the same thing were to happen again, the cryptocurrency would set a new cycle top above the June 2020 high of $13,880 in the next two months. The options market, however, indicates the history is unlikely to repeat itself.

Probability of BTC Being Above $x, March 2020 Source: Skew

Currently, the options market sees only 3 percent probability of bitcoin rising above $14,000 by the end of March.

The probability of a move above $10,000 in March is also quite low at 21 percent.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

5 theories behind bitcoin’s dizzying rally above $12,000

  • Bitcoin has tripled in price in under three months, from $4,000 at the start of April to over $12,500.
  • The cryptocurrency has surged by more than a third in the past week.
  • Rising mainstream interest, geopolitical tensions, expansionary monetary policy, a supply cut next year, and bitcoin whales may be responsible.
  • Watch bitcoin trade live.

Bitcoin has tripled in price in under three months, from $4,000 at the start of April to over $12,500. After soaring to a record high of nearly $20,000 in December 2020 then plummeting below $3,300 last December, the cryptocurrency has now recovered more than half its losses. It has surged by more than a third in the past week.

Rising mainstream interest, geopolitical tensions, expansionary monetary policy, a supply cut next year, and bitcoin whales may be responsible for the cryptocurrency’s breathless rise. We examine each factor below.

Cryptocurrency is going mainstream

Bitcoin is benefiting from broader interest in cryptocurrencies. Facebook partnered with Visa, PayPal, Uber, Spotify, and other companies to launch Libra this month, a digital coin intended to simplify online payments and purchases.

Asset manager Fidelity has begun buying and selling bitcoin for institutions, online broker TD Ameritrade rolled out trading of Bitcoin futures in December, and securities brokerage E*Trade is close to introducing cryptocurrency trading on its platform.

“The primary drivers behind bitcoin’s turbo-charged appreciation revolve around growing optimism over the cryptocurrency being accepted by the mainstream,” said Lukman Otunuga, research analyst at FXTM. “Libra has sweetened appetite towards bitcoin.”

However, he warned the cryptocurrency’s gains aren’t guaranteed to stick.

“Lessons from the past have illustrated how unpredictable non-traditional financial instruments like bitcoin can be,” Otunuga said. “With explosively volatile moves being nothing new in the world of cryptocurrency, bitcoin could still experience periods where it finds itself under sudden selling pressure.”

Bitcoin is being seen as a safe haven

America’s trade war with China and disputes with Iran, Mexico, Germany, and other countries have spurred investors to buy bitcoin as a way to diversify their portfolios.

“As the geopolitical situation remains so uncertain, strategic investors are still looking at bitcoin and ethereum as uncorrelated with centralized assets, so they provide a quasi safe-haven option.” said Marcus Swanepoel, CEO of Luno, a cryptocurrency platform.

However, bitcoin may not be the best hedge. A recent study found it was vulnerable to the same market forces as conventional financial assets.

Central banks may be juicing bitcoin demand

The European Central Bank’s commitment last week to cut interest rates and purchase assets as necessary to protect the eurozone economy, and the Federal Reserve’s hinting that it could cut rates as soon as next month, may be fueling demand for cryptocurrencies.

Lower interest rates reduce borrowing costs and discourage saving. As central banks pursue expansionary monetary policies, bitcoin buyers may be anticipating an influx of liquidity into markets that will push cryptocurrency prices higher.

“The liquidity injection from central banks has forced a range of assets like gold, bonds, the yen etc, so bitcoin is just being swept along by those macro currents,” said Neil Wilson, chief market analyst for Markets.com.

“Nominal and real yields have retreated sharply, reducing the opportunity cost of holding (or HODLing) bitcoin,” he added, referencing the acronym used to describe bitcoin owners who ‘hold on for dear life.’

There’s a supply cut next year

Bitcoin prices could be rising in anticipation of a “halving” next year. The payout to bitcoin miners for discovering new “blocks” of bitcoin started at 50 bitcoins but automatically halves every four years to combat inflation. The reward will fall to 6.25 bitcoins in May 2020, according to Forbes.

The smaller reward could lead to some people deciding the computing power and electricity bills are no longer justified and hanging up their virtual mining picks. It’s also likely to reduce the inflow of new bitcoin into the system, pushing up prices.

Next year’s halving is “being talked about increasingly as bearing on price action now,” Wilson said.

Whales may be driving prices higher

A big chunk of bitcoin is held by a small number of early investors such as the Winklevoss twins. These whales may be colluding to lift the price of bitcoin.

“There is a core group of large, wealthy bitcoin ‘hodlers’ that will never let bitcoin drop down too low,” Sid Shekhar, co-founder of crypto analytics firm TokenAnalyst, said in an interview. “These are also the folks who support it during rallies.”

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