An ugly retracement in Bitcoin (BTC), earlier this week saw the price drop below $40,000 for only the second time since September 2021.
Analysts predicted that the price would continue to fall towards the $30,000-$35,000 range. However, the price recovered $40,000 support and BTC surged above $44,000 on Wednesday. There are a few people who believe that Bitcoin could reach its bottom at $40,000 before moving higher in 2022.
Jurrien Timmer of Fidelity Investments’ global macro director called $40,000 “pivotal Support” pointing out that Bitcoin has become “technically too oversold” at the level. This could lead to a rebound in short-term.
Daily chart of BTC/USD price. Source: TradingView
Timmer’s bullish outlook was based on three catalysts: the Stochastic RSI model, the S-curve model, and the ratio of Bitcoin to gold.
Clear bounce in Bitcoin’s Stochastic RSSI
The StochasticRSI, a momentum indicator, compares the asset’s closing prices with its high-low range for a specified period. The indicator oscillates from 0 to 100. An area higher than 80 indicates “overbought”, while an area lower than 20 signals “oversold”.
This indicator helps traders spot trend reversals. It tracks the relationship between the indicator’s high-low range and the moving average of that same high-low region (%D). If the %K wave crosses over the %D wave below, then the market will give a buy signal.
It will also return a sell signal when the %K line crosses the %D line above in an overbought area.
Timmer points out that Bitcoin’s %K wave is rising above the wave %D, which signals a buy trend, just as the price held support above $40,000.
BTC/USD price chart with its recent pivot at support, and Stochastic RSI readings. Source: Fidelity
Timmer tweeted that Bitcoin had “attained a line in sand at $40,000” and was now technically oversold. He also said that $30,000 seems like a pivotal support level.
The S-curve model is price dependent.
Timmer also identified a demand curve, as shown in the graph below. This has been crucial in predicting the end to Bitcoin’s bearish cycles from 2012.
Models of Bitcoin supply and demand Source: Fidelity
The curve followed BTC price action from April to June 2021. Now, it is acting as support near $40,000, raising the possibility of a BTC rebound near $100,000.
Related: Wall Street still skeptical about Bitcoin $100K this Year: JPMorgan survey
Timmer wrote that the $30,000 level in 2021 was support based upon my demand model (Scurve model).”
The same level appears to have moved up $40,000, which provides fundamental support again. It is a moving target, but it generally acts as a fundamental anchor for the price.
BTC/Gold ratio indicates that Bitcoin is oversold
Bitcoin’s price performance against gold is also a concern. However, it appears that Bitcoin is oversold. Timmer pointed out that the “BTC/Gold” ratio has fallen to support at 22, after reaching 37.4 twice in 2021.
Bitcoin vs. gold Source: FMRCo. Bloomberg. Fidelity
The plunge caused the Bollinger Bands of the ratio to reach oversold territory. This classic buy signal indicates that capital could shift from gold to Bitcoin markets.
These charts show me that Bitcoin should be able to provide both technical and fundamental support for $40k. This doesn’t necessarily mean that it cannot go lower but it seems like $40k is the new $30k. /END
Jurrien Timmer (@TimmerFidelity), January 11, 2022
This prediction was in line with Bloomberg Intelligence’s latest crypto outlook. Mike McGlone, their senior commodity strategist, wrote the report identifying the capital rotation away from gold and towards the Bitcoin market. McGlone noted that this trend would continue, especially in light of inflation at near 4-decades highs due to loose monetary policies by the U.S Federal Reserve.
McGlone stated that gold is more likely to rise to $2,000 per ounce by 2022 than Bitcoin.
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