Bitcoin (BTC), which is expected to finish 2021 at $100,000, will likely be lower than analysts’ projections. Jesse Powell, Kraken CEO, projected a Bitcoin price target of $100,000. He is still bullish for the long-term, but does not rule out a sharp fall in the short-term.
The shift in the monetary policy of the United States Federal Reserve may be one of the factors that could put pressure on Bitcoin. The Fed announced on Dec. 15 that it would reduce its bond-buying program faster and also predicted three interest rate increases in 2022.
Daily view of crypto market data. Source:Coin360
CNBC spoke with Sam Stovall (chief investment strategist at CFRA Research), who said that historically, the S&P 500 has had negative returns during the 12-month period in which the Fed makes three or more rate rises.
History repeats itself and Bitcoin may also be unable to escape due to its strong correlation to the S&P 500 at different stages in 2021. If investors feel more comfortable profit-booking, it is hard to predict whether they will continue to invest in Bitcoin to protect their portfolio from rising inflation.
Let’s face the unknown and do a long-term Bitcoin analysis. This will help us determine the key levels to be on the lookout for.
The relative strength index (RSI), which measured Bitcoin’s 2017 sharp rally, climbed to 96. This indicates a high level of euphoria among traders. Vertical rallies are not sustainable. They are often followed by sharp corrections or periods of consolidation. This is what happened in 2017 after the bull market ended.
Monthly chart of BTC/USD Source: TradingView
From December 2017, when the USD/BTC pair was at its lowest, the pair remained below $20,000 until December 2020, when it reached above $20,000 This indicates a significant base-building period of approximately three years.
After the sharp rally in 2021, the RSI rose to 91 in March, before profit-booking began. But, bulls defended the exponential moving average of $37,281 for 20 months, which was not like 2017.
This indicates that traders were using dips to accumulate and sentiment remained positive. The pair reached $69,000 at the end of the rally, but the bulls couldn’t sustain higher levels. This is a sign that traders are making profits from rallies.
The price has retreated sharply from the 20-month exponential moving mean (EMA). The RSI has shown signs of a negative divergence which indicates that bullish momentum could be waning.
The pair could fall to $28,800 if bears continue to sink below the 20-month EMA. The bulls must defend this level as a break below could lead to a prolonged period of base-building.
The pair could also retest $69,000 if it rises above the current level. Breaking and closing above this resistance could signify the resumption or continuation of the uptrend.
Weekly chart of BTC/USD Source: TradingView
Two times, the bulls drove the price higher than $64,899 but were unable to sustain it. The aggressive bulls who bought the breakout could have been trapped, leading to a lengthy liquidation.
The 20-week EMA (52,016) has begun to fall slowly and the RSI has dipped below the negative zone. This suggests that bears may be trying to make a comeback. Although the bulls tried to defend the 50-week simple movement average (SMA), which was $47,016, they were unable to drive the price higher than the 20-week EMA.
This could have attracted more selling and the bears now want to lower the price to $39,600. The bulls must defend this level as a crack could cause the pair to plummet to $28,732.
This could slow down the start of the next leg in the uptrend. It may also keep the pair stuck between $28,732 and $69,000.
Bulls will attempt to break the $64,899-$69,000 overhead resistance zone if the price rises from its current level.
If they succeed, bullish momentum will pick up and the pair could begin its northward journey towards the $100,000-$109,000 price range, where there may be strong headwinds.
A break and close below $28,732 could lead to a bear market, with next strong support at 20,000.
Related: Bitcoin’s yearly average of $100K is tested by Christmas.
Daily chart of BTC/USD TradingView
For the past week, the pair has been falling within a downward channel. Both moving averages are falling and the RSI is in negative territory, indicating bears have control.
It will indicate that traders are buying rallies and sentiment is still bearish if the price falls below the current level of the 20-day EMA ($50,000.054). This could push the price down to $42,333, the intraday low on Dec. 4.
This is an important level that bulls must defend as bears will try to lower the price below the channel’s support line if the channel cracks. The selling could get more intense if they are able to do so.
Although the support zone of $39,600 to $37,300 might be strong, if bulls fail push the price higher than the 20-day EMA the decline could extend to $28,800.
If the price moves above the resistance line, it could indicate that selling pressure is decreasing. This could lead to the pair reaching the 50-day SMA ($56524) which could pose another challenge.
To signal a move to $60,000.00, the bulls must push the price higher than the 50-day SMA. Although this level could act as strong resistance, it could be crossed and the rally could retest its all-time high.
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