On March 27, Bitcoin's price jumped from below $45,000 to over $47,000. This marked the breach of an important resistance that had been holding the price down since early January 2022. Can we hope for new record prices or is there still too much headwind?
A short answer to that question: one may always hope but the market environment is not extremely favorable. There are opposing forces at play. We list a few favorable and less favorable signals.
The technical indicators are in the green
As mentioned, Bitcoin has broken out above a zone that had been acting as resistance for ages (months are ages in crypto :).
- The price is now above the Short Term Holder realized price. This means that investors who have stepped in over the past few months are back in profit. Traditionally, this was often an indication that a correction was over.
- On top of that, the 14-day RSI (relative strength index) is above 70: a value that has led to further gains in the weeks and months following. This has been the case in about two-thirds of the occurrences over the past five years (the average gain has been about 50% over a 90-day period).
- ETH is again outperforming BTC. This too is a five-month trend break. It is a signal that the market loves risk again.
- The number of Bitcoin in stock on crypto exchanges continues to decline. This indicates that traders are not planning to sell any time soon.
New narratives for the utility of crypto
Quite a few pennies have dropped in recent weeks, about the essential importance of Bitcoin and crypto in this world.
- Crypto offers financial independence. All the major news of the last few months implicitly showed the importance of crypto: Canada freezing bank accounts of protesting citizens without a fair trial. Ukrainian refugees who only managed to preserve some of their wealth across the border through crypto. The Russian central bank that saw its dollar reserves invalidated by the United States... all are examples of the shortcomings of the traditional financial system.
- Terra started buying 10 billion worth of Bitcoin for its reserves. Putting aside that this in itself drives up the price, it is also the possible onset of a new development, namely Bitcoin's role as a reserve currency within crypto
- Institutional adoption has now really begun (and recently seems to be picking up). The trend of more and more institutions investing part of their portfolio in crypto seems slow but
- New applications of crypto. In recent months, long-dreamed applications of blockchain technology are really being put into practice: music NFTs, the sale of real estate and collateral-free lending. (These developments, by the way, are especially good for the price of Ether).
Less good news
The US Central Bank continues to raise interest rates
As announced, the interest rate in the US was raised by a quarter of a percent two weeks ago. Stock and crypto indexes rose, as the increase was not higher than expected. That said, the Fed will feel compelled, as announced, to raise interest rates more often in the next six months. They will only stop doing so if stock prices fall too far and/or a recession sets in.
Inflation is (and will remain?) high
While Bitcoin and other crypto are seen as a safeguard against inflation, inflation also has a downside for the prices. Private investors simply have less disposable income left to put into stocks or crypto!
Number of users of the major chains are stagnant
For both Bitcoin and Ethereum, the peak in the number of active addresses and transactions was in May 2021. While the decline since then has not been dramatic, the numbers from then have not been matched. Of course, other protocols have emerged (Solana, Avalanche, Polygon, among others). But the growth of alternative chains is not spectacular at the moment.
The on-chain and technical indicators point to a further rise in prices. In addition, the broad market, including that for riskier stocks like Tesla, has been warming up to price increases again. Add to this the fact that new narratives about the usefulness of crypto have come to life among the general public.
But there is also bearish news. We face macroeconomic headwinds from inflation, interest rate hikes and, of course, the war in Ukraine hanging over the market like a sword of Damocles.
In the long term, we are hugely bullish on crypto. The new narratives and developments are additional confirmation that crypto is on the right path to further breakthroughs. However, these narratives are unlikely to lead to explosive price increases in the short term. Also, the new use cases of crypto will need months or years to generate hefty volumes and have a significant impact on the price.
What to do in this market? Traders weigh the above signals or grab their personal favorite indicator and place their bets. Long-term investors in these mixed signal markets tend to opt for the investment strategy of dollar-cost-averaging: putting in a fixed amount every week or month.