Recent Price Action
Bitcoin – The bears are in complete control of all cryptocurrencies, including Bitcoin. BTC collapsed below the critical support level at $39,713 (Chart #1). The next level of support is $31,710 (Chart #2). The short-term chart pattern will remain bearish as long as BTC remains below $39,713. The momentum is clearly in favor of the bears.
Despite the recent brutal decline, the weekly chart remains bullish. However, the bears could easily push the momentum in their favor during the next few weeks. Chart #3 displays the critical support level at $28,383. The chart will turn bearish on a Friday close below $28,383. Based on the recent price action, it certainly appears as though Bitcoin will drop below this critical support level within the next few weeks.
The Relative Strength Index (RSI) is one of the most popular technical indicators in the crypto trading community. RSI is a momentum oscillator designed to forecast tops and bottoms in stocks, commodities, forex, and cryptocurrencies. During the past few years, RSI has worked incredibly well with Bitcoin. It has captured all of the major turning points.
RSI was developed by J Welles Wilder Jr, one of the greatest market technicians of his generation. The indicator was made publicly available in Wilder’s book, New Concepts In Technical Trading Systems. Released in 1978, the book is filled with several of the most popular technical indicators ever developed. Wilder was known for creating simple trading techniques designed to help both novice traders and professional traders. RSI is a perfect example of this concept.
Chart #4 provides nine months of BTC trading activity. The oscillator is located at the bottom of the chart. RSI fluctuates between 0 and 100. However, it rarely moves above 75 or below 25. A reading above 75 is considered extremely overbought. Conversely, a reading below 25 is considered extremely oversold.
As you can see from the chart, RSI recorded a reading of 24 on 24 January. This marks the first time in over two years that RSI has fallen below 25. Based on the RSI oscillator, it’s quite possible that Bitcoin generated an important low on 24 January at $33,076.
Ethereum – Unfortunately for the ETH bulls, the intermediate-term chart pattern turned bearish on 24 January when the price declined below $2,807 (Chart #5). The momentum is clearly in favor of the bears. The next critical support level is $1,998 (Chart #6). In order to reverse the bearish trend, ETH must generate a weekly close above $3,888 (Chart #7). The most likely scenario is a trading range for the next several days.
Bollinger Bands are displayed on Chart #8. This technical indicator was developed by John Bollinger in the early-1980s for measuring the volatility of stocks and commodities. Bollinger Bands are one of the most popular indicators within the technical analysis community. It works extremely well in identifying major turning points in stocks, commodities, forex and cryptocurrencies.
As you can see from the chart, Bollinger Bands are derived from three different lines. The middle black line is a simple 20-day moving average. The upper red line represents two standard deviations above the moving average. The lower green line represents two standard deviations below the moving average.
The price rarely moves above or below the Bollinger Bands. Consequently, the indicator is used to successfully identify tops and bottoms. For example, Bollinger Bands identified a short-term top for ETH on 3 September. This was a great selling opportunity. It appears that an important low was formed a few days ago on 24 January at $2,163. This could be an excellent long-term buying opportunity.
Chainlink – As the popularity of smart contracts began to increase in 2017, blockchain developers discovered the need for a third-party service that connected smart contracts with the outside world. Chainlink serves the role of collecting outside information and relaying the information to the smart contract. Chainlink is known as a blockchain oracle.
The Chainlink (LINK) ICO occurred in September 2017 at $0.11. LINK is one of the very few tokens that has never traded below its ICO price. LINK has generated a spectacular advance over the course of the past four years. However, the token is currently in the midst of a sharp decline following its all-time high on 10 May at $52.91. The entire crypto universe has been drifting lower during the past eight months. LINK has been no exception.
It appears that LINK may have formed an important double bottom at $13.46 (Chart #9). In order to reverse the bearish momentum, LINK must generate a weekly close above $29.84 (Chart #10). Most likely, LINK will be locked in a trading range for the next several days. The important numbers to watch are $13.46 and $29.84.
Will Bitcoin Remain Bearish Until The Next Halving Cycle?
Arguably, Bitcoin’s greatest feature is the fact that Satoshi Nakamoto only created 21 million coins. There will never be more than 21 million Bitcoin in circulation. This is what separates BTC from fiat currencies. Without having a limited amount of Bitcoin, cryptocurrencies would be no better than paper currencies. BTC and other cryptos would eventually become worthless in terms of purchasing power. Of course, this is exactly what has befallen fiat currencies. Their purchasing power has slowly eroded over the course of the past several decades. By restricting the amount of Bitcoin, cryptocurrency investors will never have to deal with the decline in purchasing power. This explains why BTC is an excellent store of value.
Bitcoin is introduced into circulation through the process of mining, which is the mechanism used to add transaction records to Bitcoin’s public ledger. Added together, these transactions create a chain of blocks, known as a blockchain. Miners are rewarded when a new block is discovered. Currently, the reward is 6.25 Bitcoin.
In addition to limiting the number of Bitcoin to 21 million, Nakamoto made a brilliant decision to gradually reduce the mining reward as new Bitcoin were added into circulation. The number of Bitcoin generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, which should occur approximately every four years. Ultimately, this will result in a total of 21 million Bitcoin in circulation.
Nakamoto’s decision to reduce the mining reward dramatically increases the odds of a steady price increase in the price of Bitcoin well into the future. A reduction in the BTC mining reward is known as a “Bitcoin halving.” Whenever a halving occurs, it automatically reduces the BTC mining reward by 50%. As we discussed earlier, the current mining reward is 6.25 BTC for the discovery of a new block. The next Bitcoin halving is scheduled for March 2024, when the mining reward will be cut in half to 3.125 BTC. Let’s review the price activity from previous Bitcoin halving occurrences.
The first Bitcoin halving occurred on 28 November 2012, when the mining reward was reduced to 25 Bitcoin. At the time of the halving, the price of BTC was approximately $11. Over the course of the next 12 months, Bitcoin enjoyed a dramatic bull market. BTC reached a peak of $1,135 on 29 November 2013. This represents an amazing price increase of 10,218%.
The next Bitcoin halving occurred on 16 July 2016. The mining reward was reduced to 12.5 Bitcoin per block. For the first several months following the halving, BTC was locked in a narrow trading range between $500 and $800. In December 2016, Bitcoin generated a bullish breakout above $800. For the next several months, BTC moved substantially higher. The final top occurred on 18 December 2017 at $19,862. In percentage terms, Bitcoin advanced 2,847%.
The most recent BTC halving occurred on 11 May 2020. The current price peak for this halving cycle is 10 November 2021 at $68,906. Based on the previous halving cycles, the average length of each bull market is 15 months. There is a very strong probability that the bull market for the 2020 halving cycle ended in November 2021, which means that the length of the bull market was 18 months. Please review the following table.
As the table indicates, halving cycle bull markets generally last 12 to 18 months. It’s quite possible that the recent bull market ended on 10 November. If this analysis is correct, the next Bitcoin bull market won’t begin until the next halving in March 2024.