Long left for dead by many investors, bitcoin has been on a tear lately and has even managed to cross a key long-term hurdle—thanks to near-record bets by longs.
Bitcoin long positions have surged 35 percent in the past three weeks while short positions have remained relatively unchanged. Total long positions now lie just 8 percent shy of historic highs reached on March 26, 2018.
On the technical side of things, most short-term bitcoin charts are flashing bullish signals. Prices have crossed above the 100-day moving average for the first time in 127 days though the lower-high trend is yet to be challenged. The leading crypto displayed an inverse head-and-shoulders breakout on Monday and even touched the psychologically significant level of $4,000 thus confirming a bullish reversal on the daily chart before pulling back slightly.
Over the past 48 hours, prices have jumped from $3,600-$3,900, corresponding to $13-billion increase in market cap.
(Click to enlarge)
(Click to enlarge)
But perhaps most encouraging for the bulls is the fact that trading volumes have also surged, thus improving the odds of a solid rally in the coming days. Related: Greed Is Ruling The Markets Once Again
Bitcoin trading volumes increased 40 percent to $9.91 billion on Monday, levels last seen nine months ago. This rally seems to have legs and could eventually move past December highs of $4,200.
(Click to enlarge)
Short-term traders though are advised to exercise caution. Indicators on the daily charts and 4-hour charts are reporting overbought conditions and a minor pullback and consolidation are likely to precede the rally. On the other hand, if the advance runs out of steam and the bulls retract, a break below Monday’s $3,614 could invalidate the bullish setup.
A 10-fold rally?
Many crypto experts seem to agree that $4,200 is key if bitcoin is to really take off. One such analyst is Su Zhu, CEO of Three Arrows Capital. Su says there’s more than $2 billion in idle fiat parked at crypto exchanges, crypto funds and stablecoins. She reckons that the bitcoin market does not need an extra infusion of capital for a proper trend reversal to take hold in the foreseeable future. In fact, Su says that existing capital in the crypto markets is sufficient to allow BTC to revisit the $10,000-$12,000 range.
One analyst is much more sanguine. Yves Lamoureux, president and chief behavioral strategist of Lamoureux & Co., has told Axios that his models show that a 10-fold rally in bitcoin is well within the realm of possibility. According to him, the Fed’s recent actions are slowly eroding its credibility thus leading to more upside for assets like crypto. He points to the Fed’s dovish turn late last year that will eventually lead to more quantitative easing and more inflows into cryptocurrencies like bitcoin. He sees bitcoin enjoying a sustained rally till mid-2020.
Back in February 2017, Lamoureux famously called for bitcoin to rally from the then $950 to $25,000. Although his forecast seemed outlandish then, the digital currency did hit a peak of nearly $20,000 before crashing back to earth.
A tenfold rally would take prices to nearly $40,000 and no doubt make some investors rich. But even a more pessimistic outlook looks good by current standards. Other than a dovish Fed, there are other fundamental factors that can potentially support higher prices. These are:
• A consortium of companies is set to launch the first institutionally-backed crypto exchange, Bakkt, in the current year. This can potentially encourage more institutional participation in the crypto market as explained here
• Fidelity is set to open a regulated crypto custodial service in March
• Nasdaq plans to launch bitcoin and ethereum indices in late February that could open doors to more investment vehicles
In short, the outlook for bitcoin and the crypto market appears more bullish than it has been in months. That said, cryptocurrencies are extremely volatile even in the best of times and traders should employ appropriate stop losses when trading.
By Alex Kimani for Safehaven.com