Path to All-Time Highs for BTC?
Any views expressed below are the personal views of the author and should not form the basis for making investment decisions nor be construed as a recommendation or advice to engage in investment transactions.)
Summary
Technical: BTC broke out of $46,000 resistance. The next main resistance is $50,000 and $42,000 – $46,000 is the support zone
Markets: We see more risk-on action as most significant events have passed, and the market is in a period of relative stability
Recommendation: We recommend using your favorite trading bot (Grid, DCA, Moon) to get long in the $42,000 – $46,000 support zone
Important News
- Mar 21 – President of the ECB Christine Lagarde stated that ECB’s monetary policies would not be in sync with the Fed
- Mar 22 – China’s top policymaker Liu He says the government would actively release policies to boost the economy and keep markets stable
- Mar 23 – Russian lawmaker suggests Russia could accept bitcoin for oil payments
- Continued buying of bitcoins by the Luna Foundation
It’s a good week to be a cryptocurrency investor. Since our article was released last week, bitcoin has been on a 6-day green streak closing out the week up ~15%. This is the first sustained rally after months of sideways consolidation. While there was a lack of significant events this past week, smaller bullish narratives played out for bitcoin. Russian Federation‘s energy chief Pavel Zavalny suggested Russia could be open to accepting Bitcoin as payment for its oil from friendly nations such as Turkey and China. This once again brought bitcoin to the center stage as an asset with the potential use for international settlement. We also saw the continued story of the Luna Foundation buying 3 billion dollars of bitcoins as a reserve for its algorithmic stable coin UST. A 3 billion purchase would equate to around 69,000 BTC at current prices. That would make Terra one of the biggest corporate bitcoin holders in the world. Below is the address many think is the address used by the Luna Foundation.
On Sunday, bitcoin shot past $45,000, and we rose more than 4% in two hours, reaching a three-month high. We also saw an increase in trading volumes as buyers came into the market at the break of this resistance. If we don’t remain above this level, we will consolidate lower and test the $42,500 area where prices just came from. Bitcoin has shown resilience in the face of the Fed’s rate increase, Russia’s continued invasion of Ukraine, and the economic fallout that has slowed growth in Europe and the United States.
Our views
We see many bullish signs supporting bitcoin’s recent move to a new 3-month high. One of the most important signals is the Luna Foundation buying billions in bitcoin to supplement its reserves. With this bullish narrative, you have to think why anyone would sell now when there is guaranteed buying pressure. Although we did not expect a break out of the trading range so quickly, it shows that investors are getting more comfortable with the macro risks that have been playing out. If buyers can show continued strength at these current levels and trade above the $40,000 level, there will be clear skies above for bitcoin.
Recommendations
With bitcoin finally above its trading range, the path of least resistance seems to be up. With prices reaching the upper range of our previous recommendation, everyone should be in profit. If prices can hold above the breakout levels, the new range we should be looking at is $40,000 to $70,000. We recommend using the Grid Bot or DCA bot to build positions in the major coins. The Grid Bot is excellent for a trading range, but it will usually return lower profits than hodling when prices go straight up. One way to capture this move better is to set a lower range close to the current price of ~$40,000 with a higher upper range of ~$70,000. The bot will then purchase a high percentage of bitcoin at current prices and set sell orders on the way up. It would also be best to set fewer grids so you are holding longer and selling at higher levels. An alternative method is using the DCA bot with a frequency of 1-3 days, and hodl if you expect bitcoin to test all-time highs. As always, manage your risk. If we fall back under the $37,000 – $40,000 area, it will be a very bearish sign.
Bitcoin’s daily volatility in the past 60 days is 3.78% compared to 4.03% last week. Its approximate 30-day average daily range decreased to $2,060 compared to $2,200 last week. This is the lowest number since bitcoin went on its bull run in December 2020.
Technical Analysis
Over the weekend, there was accelerated buying in bitcoin, and it broke through the $45,500 resistance. This week, we watch the $50,000 level as the next physiological level of resistance and $42,000 – $45,000 as a support zone. We are mainly watching to see if bitcoin can hold up at these current levels. We could see pullbacks to the support zone, but this could be a great dip-buying opportunity if buyers step up and show conviction.
With data provided by Glassnode, we can see that many short-term, long-term, and exchange holders are now in profit. Most holders bought in the $35,000 – $45,000 range, indicating that many investors see that range as a value zone. We can also see a lack of short-term bitcoin holders in the $47,000 – $60,000 zone alluding to less sell-side pressure for bitcoin as it moves into this area. We are not as worried about the high number of long-term holders in the $55,000 – $60,000 range, as long-term holders have been holding through periods of volatility and do not get shaken out as easily.
Signs of U.S Late Economic Cycle
GDP Downgrades
Goldman Sachs economists said in a recent report that U.S. recession concern was growing and downgraded the 2022 GDP forecast from 2.0% to 1.75%, citing investors are afraid that the Ukraine crisis will worsen the already spiking inflation and end post-pandemic recovery.
Morgan Stanley’s cycle indicator suggests the U.S. is currently in the “Expansion” phase, with data above trend and rising, indicating that the economy is still in the mid to late-cycle phase. The indicator could peak in 2-4 months and move to the ‘Downturn’ phase in 5-10 months from the current level.
Fed’s Tightening Cycle
Inflation has surged, forcing the Fed to move off the zero bound to restore price stability aggressively. Traders are betting that the Fed will step on the gas to drive up interest rates faster than expected. The probability of the Federal Reserve raising interest rates by 50 basis points at the next meeting is 72%. Everyone needs to keep this on watch as bigger rate hikes usually lead to risk-off selling in the equity and crypto markets.
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