The insights were taken from a Bitcoin analysis outlook provided by BDSwiss Research.
However, despite smashing multiple performance records in recent months, prices have stopped short of extending gains further as market participants consolidate and engage in profit-taking.
Technical analysis
Considering the attractive fundamental climate for bitcoin traders, the technical outlook is rather mixed.
Speaking at a live webinar addressing its clients in late January, BDSwiss technical analyst Frank Walbaum explained that fresh-faced speculative trading activity and heavy-footed institutional interest were driving the surge in bitcoin demand since Q4 2020.
“Bitcoin prices are extremely volatile, but the overarching uptrend is clear. As more market participants enter the market, the added liquidity should help smooth out the sharp intraday gyrations and induce a gradual decline in volatility moving forward. After such extreme gyrations since December, both speculative traders and long-term investors are getting some much-needed respite right now,” said Mr Walbaum.
“The technical outlook remains in favour of a consolidatory phase in the short term, although the longer-term targets of $50,000 and beyond are already within striking distance,” he added.
Bitcoin outlook
In the near-term, a symmetrical triangle formation with a top range of 37,850 and a bottom of 34,200 is driving trader sentiment, according to Walbaum.
Considering the heightened volatility, the narrowing range is expected to set the stage for a breakout to the top side given the established uptrend dating back to December 2020 when bitcoin sheared past its previous stumbling ground and record high of $20,000, first set in Q4 2017.
Also, given the strong move up to $40,000 in December, plotting a Fibonacci retracement to capture potential levels of consolidation and/or renewed buying interest, is worth considering.
Upon plotting a standard Fib retracement on bitcoin price action, key levels have emerged that will likely dictate short-term price action if Bitcoin prices move lower to consolidate their recent gains.
61.8 percent: $29,442
50 percent: $31,750
38.2 percent: $34,130
23.6 percent: $37,000
Assuming bitcoin cannot break above $40,000 in the short-term, a consolidatory mid-long-term phase is potentially on the cards. On the flip side, over the past 4 months, the cryptocurrency has closed out the week higher on 12 occasions out of 15 which indicates continued bullish sentiment.
If gains extend beyond the record high of 41,567, the next target is likely to be the symbolic $50,000 mark.
According to an investor note published by technical analysts at global investment bank JPMorgan, “unless bitcoin can breakout above $40,000 soon, trend-following investors could begin to cash out”.
The bank went to add that Bitcoin investors looking to reduce exposure by trimming long positions could propagate the past week’s correction and said it expects “momentum signals to naturally decay from here up till the end of March.”
Institutional buying
Over the past few months, several significant funds have gone public about their growing Bitcoin exposure. Institutional investors seeking exposure to the cryptocurrency have harnessed the likes of Grayscale Bitcoin Trust, Galaxy Digital Holdings and MicroStrategy.
More specifically, Grayscale raised $3.3 billion across its cryptocurrency investment vehicles in Q4 2020, a record for the digital asset manager.
“The flow into the Grayscale Bitcoin Trust would likely need to sustain its $100 million per day pace over the coming days and weeks for such a breakout to occur,” the bank said. To provide some context, newly named Grayscale CEO Michael Sonnenshein revealed Grayscale had raised more than $700 million “on Friday alone”.
Million-dollar question
With bitcoin prices posting unprecedented gains, some of the world’s leading hedge fund managers are starting to make unprecedented forecasts. According to former Goldman Sachs hedge fund manager Raoul Pal, bitcoin is on track to hit US$1 million per coin before 2025 on the back of a “wall of institutional money”.
Volatile gyrations in the bitcoin price have induced many market commentators to declare the cryptocurrency as an unsuitable asset and far too risky to be held as a long-term investment. However, things are quickly changing with institutional fund managers seeing bitcoin in a completely different light.
According to Marshall Gittler, Head of Investment Research at BDSwiss, bitcoin price action is sensitive to the same market themes as US tech company and carmaker Tesla – the valuations of both are being driven by the expected emergence of ground-breaking technology.
“Bitcoin does seem to have followed the trajectory of Tesla Inc., at least since 2020. This suggests that they both may be of interest to speculators looking for a high-volatility play that’s based on new world thinking – a product that’s going to change the world, much like the railroads back in the 1800s and the internet in the 1990s,” said Mr Gittler.
With both retail and institutional interest rising steadily, bitcoin prices surging higher and hefty third-party partners adding their support for bitcoin ubiquity, there is only one thing that stands in traders’ way: regulators.
According to the UK financial watchdog, the Financial Conduct Authority (FCA), consumers should be prepared to incur major losses if they invest in digital currencies such as bitcoin. The warning was also accompanied by an official ban on the sale of crypto derivatives to retail clients in the UK – possibly an early indicator that bitcoin’s trials and tribulations are only just beginning.
While many UK and EU traders called foul over the closure of leveraged crypto contracts, brokers under ESMA had to comply with FCA’s decision. BDSwiss Group was among the brokers that chose to take a proactive approach, warning UK-based clients about the ban months in advance, preventing traders from opening new positions and removing all cryptocurrency CFDs for all clients under CySEC and for all UK-based clients, a week before the actual ban came into effect.
The FCA also stated that it remains open to reviewing the prohibition, but only if it sees strong evidence that the drivers of consumer risk have been materially addressed. Over the past four years, cryptocurrencies have become ubiquitous, prompting more national and regional authorities to grapple with their regulation, and their responses varied widely with both widespread bans and endorsements. As this is a relatively new asset class, regulations are bound to change, but we can only speculate as to what extent and effect.
What we do know is that despite regulators’ stark warnings over bitcoin’s volatile nature, its valuation has ballooned by an eye-watering 300% to a market cap of around $641 billion since late 2020. Bitcoin’s frothy performance has led several market commentators to cite “institutional interest” as the prime reason for the currency’s explosive outperformance. Other factors such as PayPal’s legitimisation of the cryptocurrency and growing acceptance of the crypto/decentralisation concept in general, are also serving as timely catalysts for the world’s leading cryptocurrency.
This article was originally posted on FX Empire
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