Bitcoin’s Start to 2022: Is it a Happy New Year?

Bitcoin (BTC) unfortunately ended 2021 far behind analysts’ estimate of $100,000. Jesse Powell, the CEO of Kraken, who previously forecasted a $100,000 price objective for Bitcoin, is still confident in the long run; however, he doesn’t rule out a dramatic decrease in the near run.

The adjustment in the US Federal Reserve’s monetary policy is one of the downsides that could pressurize Bitcoin in the short run. Furthermore, the Fed stated on December 15 that it’s going to accelerate the winding down of its bond-buying operation, as well as three interest rate hikes in 2022.

When the Fed raises rates three times or more, according to Sam Stovall, chief investment strategist at CFRA Research, the S&P 500 has traditionally posted negative returns over 12 months.

If history repeats itself, Bitcoin may struggle to break free in 2021 because of its close association with the S&P 500 at various periods. It’s tough to say whether investors are going to continue to acquire Bitcoin to protect their portfolio from rising inflation if the risk-off attitude leads to profit-booking.

Bitcoin USD Charts

 The rapid increase in Bitcoin in 2017 boosted the relative strength index (RSI) beyond 96, signaling enthusiasm among traders. Vertical rallies are seldom long-lasting and are typically followed by a severe consolidation or correction period. After the bull market ended in 2017, this is what happened.

Until the breakthrough above $20,000 in December 2020, the BTC USD pair remained locked below the December 2017 highs – this indicates a three-year-long period of base-building.

Profit-booking set in after the pair’s rapid surge in 2021 pushed the RSI above 91 in March. Compared to 2017, bulls fought the 20-month exponential moving average ($37,281) with tenacity.

This indicates that traders were accumulating on the dips as sentiment remained favorable. The pair then rallied to a fresh all-time high of $69,000; however, bulls were unable to maintain the gains, which demonstrates that traders are profiting from rallies.

The steep correction has pushed the price back toward the 20-month exponential moving average (EMA), and the RSI is showing signs of a bearish divergence, implying that the bullish momentum is fading.

Furthermore, the pair might collapse to the critical support level of $28,800 if bears dig and maintain the price under the 20-month EMA. Thus, the bulls must defend this mark since a break below it might lead to a lengthy period of base-building.

The pair, on the other hand, might retest $69,000 if the price climbs from its current level. This continuation of the uptrend might be signaled by a break and closure above this barrier.

In two instances, the bulls were able to lift the price above $64,899; however, they were unable to maintain the higher levels. The aggressive bulls that bought the breakout could have been trapped, culminating in an extended liquidation.

Bears are trying a recovery as the 20-week EMA ($52,016) started to move down slowly, and the RSI has slipped into the negative territory. The bulls attempted to defend the 50-week simple moving average (SMA) ($47,709) but were unable to push the price above the 20-week exponential moving average (EMA).

This may have prompted more selling, and the bears are now attempting to lower the price to $39,600, the next major support level. The bulls must defend this level because if it’s lost, the pair might fall to $28,732.

Moreover, this move might delay the start of the second leg of the uptrend, keeping the pair trapped in a zone between $28,732 and $69,000 on the downside.

Bulls are going to make another effort to clear the $64,899–$69,000 overhead resistance range if the price rises from its existing price and rises over the 20-week EMA.

If they succeed, positive momentum might speed up, and the pair might begin its trip north toward the $100,000–$109,000 zone, where the rally might confront stiff headwinds.

A break and closure below $28,732 might signal the start of a bear market, with the next major support level below $20,000.

To signal the start of an uptrend to $60,000, bulls must lift the price above the 50-day SMA and keep it there. This level may operate as a significant resistance; however, if it is breached, the rally might resume and retest the all-time high.

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Author: Jason Donaldson