Bitcoin - Consolidation Brings New Opportunities


Source: Messari December 31st, 2020

Source: Messari December 31st, 2020

After a massive rally from the beginning of October, Bitcoin (BITCOMP) almost reached prices around US$20,000 on December 1st. Despite a heavily overbought situation, the bulls only needed a two-week breather. The successful breakout immediately caused a further acceleration, so that bitcoin prices continued to explode until January 8th 2021 and were able to rise to almost US$42,000. Bitcoin had thus increased more than tenfold in less than 10 months since the Corona crash! Looking at 2020 as a whole, Bitcoin pretty much outperformed everything, gaining 318%.

Source: Dan Held on Twitter. Bitcoin - Consolidation brings new opportunities

Source: Dan Held on Twitter

Over the last three weeks, however, there was, not surprisingly, a wave of profit-taking hitting the bitcoin market. Hence, prices retraced all the way back down toward just under US$29,000. This rapid correction represented a drop of 31% in just 14 days. In the big picture, however, this is not unusual. Instead, bitcoin has seen countless corrective price moves like this over the past 10 years. In the last bull market between autumn 2015 and December 2017, there were a total of six sharp pullbacks, all of which amounted to sell offs between 29% and 38%.

Source: Dan Tapiero on Twitter

Source: Dan Tapiero on Twitter

In the bigger picture however, volatility is still relatively low. Rather, the relative volatility indicates that the range of fluctuation is only just slowly beginning to rise again and should spike towards the later stages during the course of this current bull market.

Overall, bitcoin has been in a new bull market since the Corona Crash in March 2020 and is likely to head for much higher price regions in the coming 10 to 24 months. Daily fluctuations of US$10,000 and more will then become increasingly common.

Technical Analysis For Bitcoin in US-Dollar

Bitcoin, Weekly Chart as of February 2nd, 2021. Source: Tradingview

Bitcoin, Weekly Chart as of February 2nd, 2021. Source: Tradingview

With the breakout above the all-time high around US$20,000 on December 16th, 2020, the Bitcoin rally that had been underway since March 2020 already accelerated once again significantly. Although the market was already heavily overbought on all timeframes, bitcoin doubled within the following four weeks and reached a new all-time high at around US$42,000 on January 8th, 2021. After such a price explosion, it takes time to digest this strong rise. The pullback towards and slightly below US$29,000 is therefore perfectly normal and healthy.

From the perspective of the weekly chart, however, there are no clear signs for an end of that correction yet. Looking at the “old” support zones and the overbought stochastic oscillator, a return to the breakout level around US$20,000 would be quite conceivable. Beyond that, there are two long-term upward trend lines that could also act as possible targets on the downside.

Using the classic Fibonacci retracements from the low at US$3,850 to the recent high at US$42,000, the 38.2% retracement at US$27,425 would be the minimum correction target. If bitcoin can continue to hold above this retracement, this would be an extremely bullish sign of strength. A first retest of the recent lows at US$29,000 was also successful and thus far created a nice double low which might already have marked the turning point. However, prices below those lows would confirm a larger and deeper type of correction. Prices around US$27,500 and lower towards US$20,000 to US$22,000 would then become increasingly likely.

However, since bitcoin is undoubtedly in an established bull market and in an overarching uptrend, the surprises are generally happening to the upside. Therefore, the only thing to note here is that new prices above US$40,000 would probably signal a continuation of the steep rally. In this case, prices around the next psychological level at US$50,000 should follow quickly.

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Disclaimer: All published information represents the opinion and analysis of Mr Florian Grummes & his partners, based on data available to him, at the time of writing. Mr. Grummes’s ...

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