Charting the Current Bitcoin Boom
A Simple Analysis of the Recent Bitcoin Surge and Projections for the Near Future
Bitcoin has been trending higher against the U.S. dollar since Q4 2020, riding a boom while the COVID-19 pandemic wreaks havoc on major economies around the planet.
Justifiably or not, many investors and market participants regard cryptocurrency assets — with bitcoin at the forefront — as safe havens against inflation and market volatility, competing with traditional assets like gold.
Retail investors were traditionally the mainstay of the crypto space, and now we also see significant corporate, institutional, and sovereign interests heighten that demand.
As with any financial market instrument, we can expect market corrections or pullbacks to happen with some regularity.
In the case of corrections in BTCUSD (the price of one bitcoin in U.S. dollars), the mainstream media tends to take more of an interest because bitcoin is relatively new and controversial.
Every time price corrects (e.g. BTC falls in price against the USD) on the way up, we usually see mainstream media making a big deal about the resulting losses.
And then we will see media pundits waxing lyrical about the longer-term direction of BTCUSD, whether up or down, sometimes using a variety of trading analysis indicators and statistics.
Using Technical Analysis in Trading Bitcoin
Traders use technical analysis to identify trading opportunities by exploiting price trends and patterns that appear in the time series of whatever asset is being traded.
Time series data in most cases is usually represented by a chart tracking price movements against time.
Many traders and analysts frequently use complicated charting software (sometimes called indicators) to perform technical analysis.
Are Bitcoin Prices Difficult To Predict?
Does bitcoin lend itself very well to technical analysis of its price movements?
Many assume that cryptocurrencies do not “move,” or do not exhibit market behaviors similar to that of conventional trading instruments, like forex pairs, index futures, stocks, and bonds.
That assumption may be true for the newer altcoins. But bitcoin has been around since 2009. Now that we have enough data and price history, we can show that bitcoin’s price action is not all that difficult to analyze.
Today and for the foreseeable future, we will present our own analysis of bitcoin (BTCUSD in this case) using just a simple 60-bar moving average and horizontal support/resistance lines.
I use a 60-bar moving average on all my charts. I could use a more “traditional” textbook 50-bar moving average, but on an intuitive level, I find that averaging 60 bars is a happier middle ground for trend determination compared to using a “choppier” 15-bar average and a more unresponsive 200-bar average. Plus, I was trained to use 60-bar moving averages since my rookie trader days, so the habit stuck!
For some background: I have traded the financial markets since 1995. For 16 of those years, I traded forex, bonds, and commodities for top-tier banks in Malaysia.
I have mastered virtually every charting indicator commonly available in most software platforms that provide charting capabilities such as Reuters 3000, Bloomberg, Metatrader, Tradingview, etc.
I now trade on my own account, using only the most basic indicator — the simple moving average — and basic support/resistance theory that is time-tested since my days as a rookie trader all those years ago.
The reader is free to scroll forward to get to the meat of this article, i.e. the interesting technical chart points and our prognostication of where bitcoin’s price will go to next.
But it is also pertinent to ask the following question.
What caused bitcoin to surge in recent months?
For that matter, why does bitcoin’s price move at all, up or down?
You will find the above questions answered by a multitude of analysts and pundits, especially since the current BTCUSD bull run that started circa October of last year.
From the point of view of a grizzled old school technical trader like myself, the answer is the same whether I am trading crypto or conventional trading instruments like forex or equities.
Price goes to areas where there’s least resistance.
Price goes up when buyers keep bidding higher and higher prices, until no one wants to buy anymore and the only price that remains is the offer.
This is when a resistance line is drawn, to show the point where price can go no higher.
Sometimes the last bidder can continue buying at the same high levels and not pay higher than the current offer, resulting in price ranging sideways at the higher levels.
When there are no more bids, there is little resistance to the downside. Sellers can then continue to offer at lower and lower prices until no one wants to sell anymore, and the only price that remains is the bid.
This is when a support line is drawn, to show the point where price can go no lower.
And sometimes, the last seller can continue offering at the same low levels and not offer lower than the current bid, resulting in price ranging sideways at the lower levels.
Despite whatever explanations are provided about the causes of recent bitcoin price corrections - for example, because this Whale Cluster did this or that Hodler Cluster did that - the above explanation is really all there is to it.
It’s all about who has the strongest will, the buyers or the sellers. And in some cases, it is not even about who has the biggest war chest.
The Longer Term Outlook for BTCUSD
Let’s start with the Daily candle chart for BTCUSD.
Bitcoin had been trending higher since Q4 2020. Despite the four-or-so major pullbacks since then, I judged the trend to be strong for as long as the 60-day moving average (MA) line continues to slope upwards.
Notice that each price action turning point (the highlighted blue areas) happens at or near a horizontal support or resistance line, where there is either a history of significant price action, or where the price action is projected to happen.
Also notice that each pullback on the Daily candle chart got closer and closer to the 60-bar MA before eventually breaching the MA below $55,000 a few days after failing to take out $65,000 in recent days.
After ranging around $55,000 for a couple of days, bitcoin broke below to test the orders clustering between $45,000-$47,920. Conversations with some hedge funders indicate that fresh clusters of sell stop orders and buy limit orders were building up around $45,000 in roughly equal strengths.
It would appear the test had failed on the back of new buyers coming in that are not part of the market players layering orders above the $45,000 support.
A sell stop can be a stop-loss sell order to prevent long BTC trades from going deeper in the red, and can also be a sell order at a low level with a view to take profit at even lower levels.
A buy limit order is a buy order to establish fresh long BTC trades at lower levels with a view to take profit at higher levels.
We do not count on such intel to be true over time, as order book information can always turn on a dime.
Below we show a clearer version of the above daily chart.
Ultimately, BTC bulls are trying to break through the $65,000 ceiling they failed to break earlier, with a view of testing $67,920 and then $75,000.
But if the current pullback manages to find its bearish momentum again, we think long-term BTC bulls still have strong bids between $45,000 and $47,920, hoping to mop up whatever offers come their way.
The Intraday Outlook for BTCUSD
Dialing down to the four-hour and the one-hour candle charts, you can see more precise levels where orders are clustering.
Bids for BTC are clearly forming above the order clusters already between $45,000-$47,500, while sellers are reportedly pressuring BTC down from north of $55,000, forcing price action to stay in a sideways pattern until traders figure out what fundamental issue or soundbite to pay attention to next.
Time will tell if the $55,000 resistance will hold for the rest of the week.
For the sake of completion, we present a five-minute chart of BTCUSD just to show that it is also feasible to trade bitcoin as a scalper once you know where all the orders are likely to be (hint: the horizontal levels near turning points).
The following is the same five-minute chart, but it’s compressed to show price data over a longer period. Notice that most of the turning points still “respect” the horizontal support/resistance lines.
This concludes our first (but not last) purely chart-based analysis of BTCUSD.
We hope we have also demonstrated that bitcoin is not all that complicated to analyze, using simple charting indicators and techniques already in use for conventional trading instruments.
Going forward, we will examine new intraday chart setups on BTCUSD along with those of other cryptocurrencies such as ether (ETHUSD) and XRP (XRPUSD).
At the same time, do also note that the support/resistance zones illustrated in this article will remain familiar (i.e. unchanged). They will stay so comfortingly familiar, in fact, that investors and traders can use those horizontal lines in conjunction with any strategy, be it fundamental or technical analysis.
The reader may be puzzled and ask, “why will the lines remain familiar? Won’t the market order levels be random?”
To that, we will answer cryptically that “Price has memory.” Despite what some of us like to think about the markets being random, price action frequently rebounds off (and retraces to) levels that have historically seen price action before. Traders, being human beings, just love familiar levels, as they are “comforting”!
Watch this space for the next technical analysis installment!
Disclaimer: This content is for educational purposes only. It does not constitute trading or investment advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. If you found this content interesting, and have an interest in commissioning content of your own, check out Quantum Economics’ Analysis on Demand Service.
