Bitcoin: a major recovery expected (technical analysis)

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peshkov

After a brutal 14-month bear market, Bitcoin (BTC-USD) prices hit a major low at $15,479 on November 21, 2022. On the same day, the Grayscale Bitcoin Trust (OTC:GBTC) hit a low of $7.46. Since then, prices have moved sideways for about six weeks. Over the past two weeks, however, Bitcoin has surged, hitting nearly $21,600 yesterday. It looks like a regime change has happened.

Meet again

As not only the prices of precious metals (gold +19.3%, silver +39.7%), but also the stock markets (DAX +28.7%, S&P500 +18.7%) recorded a significant recovery in past three months, it was only a matter of time. until Bitcoin sends a sign of life again.

Already since mid-November, Bitcoin had barely reacted to the flood of bad news coming from the imploding crypto sector. Still, many altcoins have fallen to new lows. At the same time, sentiment was completely devastated and Bitcoin was hated and ridiculed. Clearly, this was the best contrarian setup we’ve seen in a long time.

It is therefore not surprising that bitcoin has climbed 31% since the start of the new year. The stellar rally took prices from $16,358 to $21,445 at lightning speed. Anyone who was not invested is now continuing the rally. And those who even shorted Bitcoin are now desperately hoping for a significant pullback. Yet despite the significant rise, the mood of market participants remains skeptical.

The first rebound in 2019 led to an increase of nearly 330%

Bitcoin in 2019 in USD, weekly chart as of January 17, 2023. (TradingView)

A comparative look at the past shows that Bitcoin, much like 2019, suddenly found a new lease on life after a brutal bear market that ended in a multi-month base pattern. In 2019, Bitcoin managed to surge 328% from $3,200 to around $13,800. The four and a half month rally offered no major setbacks for an entry! On the contrary, more than 61.8% of the previous bear market has been reversed without any major pullbacks. If Bitcoin currently had something similar in mind, prices could rally towards approx. $48,000 to $50,000 until summer! Even if Bitcoin would take it a bit easier in 2023, a recovery towards the 38.2% retracement at around USD 35,000 would be easily conceivable.

Technical analysis for Bitcoin in US-Dollar Bitcoin Weekly Chart The upper edge of the downtrend channel is the 1st target

Bitcoin to USD, weekly chart as of January 17, 2023. (TradingView)

On the weekly chart, thanks to the large green weekly candle, Bitcoin has now almost reached the upper edge of the downtrend channel. Basically, therefore, a pullback could take place from approx. $22,000 and $23,500. However, the weekly stochastic provides a buy signal and still has room to go further towards and into the overbought zone. The upper Bollinger band ($22,268) doesn’t object either. At a higher level, Bitcoin probably wants to approach at least one of the orange retracement levels. Historically, a weekly close with a 20% gain after an extended bear market with a loss of 75% or more has always resulted in a Bitcoin bottom!

Overall, the weekly chart is clearly bullish and suggests further price increases. If the downtrend channel halts the bulls around $22,500, the support area between $18,000 and $20,000 should absorb the first pullback.

Bitcoin Daily Chart 200-Day Moving Average Now Supported

Bitcoin in USD, daily chart as of January 17, 2023. (TradingView)

In summary, the daily chart is bullish. The stochastic oscillator, which is currently priced in on both lines above 80, secures the strong uptrend for now. Major setbacks are therefore not expected anytime soon. The next target is obviously the upper edge of the downtrend channel (currently around $22,350). In case of pullback or consolidation, there is plenty of strong support waiting for you in the area between $18,000 and $20,000.

On the contrary, the vast majority of market participants may have been completely taken aback by the impulsive rally. Given the brutal 14-month bear market and the fact that Bitcoin can now be traded using numerous instruments or derivatives, the number of short sellers at the November low was likely higher than ever. These short sellers are now gradually deeper and deeper underwater and will become the buyers that could quickly push Bitcoin prices towards $35,000 and possibly even $50,000 by the start of summer. the continued rise in prices forcing them to cover their short positions.

Sentiment Bitcoin Sentiment returns to neutral

Crypto Fear & Greed Index, as of January 15, 2023. (Lookintobitcoin)

For the first time since the start of the bear market in November 2021, sentiment has picked up significantly. At 52 points, the Crypto Fear & Greed Index is currently signaling a fairly balanced or neutral sentiment.

Long-term Crypto Fear & Greed Index, as of January 15, 2023. (Lookintobitcoin)

The contrarian buying opportunity that we propagated in December has therefore disappeared. However, significant price increases will likely be needed until sentiment turns euphoric.

Bitcoin Positive Seasonality Through June

Seasonality for bitcoin, as of January 15, 2023. (Seasonax)

According to the seasonal pattern, Bitcoin is now most likely facing three to five positive months. The trend should therefore be upwards until the beginning of the summer.

Sound currency: Bitcoin against gold

Bitcoin/Gold-Ratio, weekly chart as of January 17, 2023. (TradingView)

In summary, the Bitcoin/Gold-Ratio bottomed out and reversed. A larger rally or countertrend bounce is to be expected. Ratio values ​​between 13 and 14 would be the minimum goal. Therefore, it is recommended to increase its Bitcoin allocation against gold. The price of bitcoin thus rose by almost 25% against gold in no time. The Bitcoin/Gold-Ratio has therefore clearly trended upwards over the past two weeks. It has already broken above the 14-month downtrend line! The weekly stochastic provides a new buy signal in favor of Bitcoin. A normal rally or a counter-trend rebound could drive the ratio to a value close to 20 in the coming months. With this, you would get almost twice as much gold as currently for your Bitcoins! The first price target in the coming weeks would be the upper Bollinger Band on the weekly chart (13.20).

Macro Update Stagflation and Cold War 2.0

26th Annual PwC Global Survey, January 16, 2023. (PwC)

High inflation figures and the resulting sharp rise in interest rates, central bank balance sheet reductions, the war in Ukraine and the bursting of the Chinese bubble have made 2022 one of the toughest stock markets of all time. However, after a month of heavy selling in almost all asset classes, there has been a gradual but significant recovery in equity markets since mid-October. The weakness of the US dollar also supported a strong rally in precious metal prices. Nevertheless, the mood of top managers is extremely pessimistic.

Gross domestic product in China as of January 17, 2023. (Holger Zschaepitz)

For several weeks, the end of the zero-covid policy pushed by the Chinese government has brought additional inflationary pressure. While China’s real estate sector is expected to continue to struggle, overall growth in China (CNYA) is expected to normalize, putting demand pressure on global commodity prices.

Cold War 2.0

At the same time, massive geopolitical challenges could loom, as an end to the drama in Ukraine or a pacification between West (US and EU) and East (China and Russia) are not in sight. For decades, geopolitical risks played only a minor role in financial markets. Now, however, the unipolar world order (Pax Americana) may be collapsing, and the world may have to reorganize and rebalance itself in years to come.

In my opinion, China holds the best cards in this regard, as it skillfully drives the de-dollarization of global trade flows through OPEC+, BRICs and also through CBDCs. Thus, the US dollar has lost around 10% against the Chinese renminbi (CNY) over the past two months. Currently, growth in China is accelerating, while it is slowing in the United States. In particular, the growing trend of pricing oil and gas sales in renminbi must be a thorn in Americans’ side. After all, the United States probably has little time left, if at all, to prevail against an emerging China.

In view of all these developments, central bank policy could therefore lose its influence on financial markets in the years to come and geopolitics could dominate instead.

Wall of worry until spring or early summer

In any case, whatever the short-term recoveries, the monetary and fiscal policy situation in the West remains extremely complicated and the fundamental outlook unfavorable. I think stagflation will probably be the most likely outcome. The end of the restrictive monetary policy of the FED and the ECB is not yet in sight. However, we expect a reversal sometime this year. For durable assets such as stocks and precious metals, but also Bitcoin, this would be very good news in the medium to long term. In the short term, bad fundamental prospects are always thwarted by too much pessimism and too many shaky hands. The markets could therefore initially continue their recovery along a wall of concern until spring or early summer.

Conclusion: Bitcoin Significant Recovery Expected

Given the good start to the new year (+30%), the chances of a strong Bitcoin recovery are very good. With the sharp correction (-77.5%) since November 2021, all weak hands and unprofitable or questionable companies and players should have been driven out of the market. It’s not that these players have been wiped out forever, but they will likely only return to the Bitcoin market at significantly higher prices.

The Achilles heel for the crypto and Bitcoin sector, on the other hand, remains predictable regulation by policy makers. The FTX disaster has shaken confidence in the industry and has now truly put all politicians and regulators on notice. Technically, the Bitcoin network is unstoppable, but with penalties and bans, exchange regulators could hit the industry hard in the months and years to come.

Nevertheless, we are optimistic and believe that a major rally with prices from $35,000 to maybe even $50,000 at the start of the summer is quite possible.

Editor’s Note: This article discusses one or more securities that do not trade on a major US exchange. Please be aware of the risks associated with these actions.

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