Subdued Buying Interest in Bitcoin? A Medium to Long-Term Outlook
2020-21: A Bitcoin buying interest boom
If 2021 was a spectacular year when the crypto world reached dazzling new heights, 2022 was a rapid rollercoaster drop. But let’s analyze this step-by-step. By the end of 2020, the crypto markets started generating buying interest among crypto- enthusiasts and various other investors. In December 2020, Bitcoin, Ethereum, Litecoin, and other crypto currencies started gaining in price. In particular, Bitcoin rose from around 15000 to almost 70000 in approximately 3 months, a move that overshot the previous all-time high of about 19000 reached at the end of 2017. Indeed, in 2020 Bitcoin seemed like a resilient safe haven asset with unlimited potential, with the value as it did throughout 2018 and 2019. In the beginning of August 2021, the crypto market experienced another strong wave of buying, lasting for about 3 months, after which the upside momentum started fading away. By the end of 2021, Bitcoin lost most of its gains made during that year, but still was able to end the year with a slight gain.
2022: Fear and negative market sentiment
During the first quarter of 2022, Bitcoin was seen bouncing back up. Some investors saw it as a possible third wave of a bullish rally. However, fear started kicking in by the end of March, as the U.S. Fed started raising rates and the U.S. dollar was seen going rapidly north. This negative market sentiment forced investors away from riskier assets like stocks and crypto currencies. By mid-November 2022, BTCUSD travelled back to the levels, where it was at the end of 2020, before the big rally started.
The Fed and the rising U.S. dollar were not the only factors that scared investors away from cryptos in 2022. The crash of Terra/Luna coins and the failure of FTX made everyone question the safety of buying cryptos. Obviously, everyone understands the risks associated with the unregulated crypto market, however, the absence of big corporate crypto failures was still attracting buyers into the game, as they were still willing to take the risk. With the crash of FTX, people became more risk-averse and withheld from allocating bigger chunks of their funds into cryptos, especially the smaller ones. Bitcoin, in that sense, is still somewhat of a winner and remains one of the most popular crypto currencies for investment. However even crypto enthusiasts started shifting towards greater diversification. They started moving into the stock market and precious metals, which have been performing relatively well.
With the recent bankruptcies in major crypto exchanges like BlockFi, Three Arrows Capital, FTX, Genesis, and Bittrex, people continue to avoid increasing their exposure in cryptos. Given that these bankruptcies happened relatively close to each other, investors fear an imminent failure of another major crypto exchange .
Another issue bothering investors is the outcome of the ongoing court battle between Ripple and the U.S. SEC, where the latter is accusing Ripple that its XRP is a security and that the company should have registered with the regulator first, before selling it to the general public. If the court ruling will be in favor of the SEC, this might put a negative twist on other major crypto currencies. Some believe that such an outcome could make the crypto world less attractive and more regulated, meaning that smaller cryptos would start disappearing, leaving just the major ones afloat. Although people on the other side of this debate would say that this is a good thing, as now they would be able to invest with more confidence, the crypto world may become similar to the general stock market, meaning that investors might not get the crazy gains from it as they used to. Till today, this is one of the major factors why people invest into carious cryptocurrencies.
The technical view: medium-term positivity
After reversing higher back in mid-November 2022, the technical picture on the weekly BTC/USD chart on our MT5 platform shows that crypto has moved north, reaching a key resistance territory near the 31000 mark. The rate failed to bypass that territory and as a result, crypto moved back down with more sellers starting to come in. That being said, we can see that BTCUSD is still trading above a medium-term trendline drawn from the lowest point of January 2023. If that trendline remains intact, the current short-term slide we are seeing might be classed as a temporary correction before another possible leg of buying.
Although there is still some positivity left in the medium-term outlook, to get comfortable with the idea of examining higher areas, a break above the previously discussed 31000 barrier is needed. This could open the door for a move towards the psychological 40000 zone, which is near the highest point of May 2022. If buying doesn’t stop there, the rate could accelerate further, possibly targeting the 48000 area, not far from the highest point of March 2022.
If BTCUSD breaks the previously discussed medium-term upside line, that may spook the bulls for a while, giving more bears to step in. If that happens, crypto could fall back to the lowest point of 2022, near the 19500 level. If the sellers do not stop there and overcome that hurdle, this could clear the path to the 15500 territory. That territory is marked near the lowest point of 2022. Continuous pressure from the sellers may push BTCUSD further south and a break below the 15500 area would confirm a forthcoming lower low, clearing the way to the levels last seen back in mid-2020. We can also see that the MACD on our weekly chart is somewhat in support of the downside scenario.
Verdict: Strong headwinds & subdued buying interest
Bearing the aforementioned analysis in mind, we believe investors will take a slight pause in regard to putting more funds into the crypto world due to strong headwinds that the industry is currently facing. We believe that the strong buying interest among the major crypto currencies might remain subdued for some time now, until the waves of negative headlines ease. Indeed, occasional spikes in volatility could occur, however those might be short-lived.
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