During the past few months, there has been a growing consensus in the crypto community that Bitcoin would easily exceed $100K by the end of 2021. In fact, a few prominent experts were forecasting $250K to $300K by the end of the year. With less than 30 days remaining until the end of 2021, these forecasts will most likely be wrong. Speculative markets are designed to frustrate as many people as possible. Therefore, we should not be surprised that Bitcoin will probably close below $100K at the end of December. Way too many speculators were placing large bets that $100K would be penetrated. This is a perfect example of why it’s never a good idea to follow the crowd. Why? Because the crowd is usually wrong.
Bitcoin – After recording a new all-time high on 10 November, Bitcoin has been unable to create any additional momentum (Chart #1). BTC has been trading sideways-to-lower during the past few weeks. Despite the recent decline, the short-term chart pattern continues to remain bullish. As long as BTC stays above 50,461 on a weekly closing basis, the momentum is in favor of the bulls (Chart #2).
A classic sign of bullish momentum occurs when the market continues to make a series of higher highs. In fact, this is one of the best indicators of a bull market. BTC has been generating higher highs for the past four months (Chart #3). This price activity validates the fact that Bitcoin is still in a bull market. The pattern will continue if the price is able to exceed 68,906.
Several major investors in the crypto community have referred to Bitcoin as “digital gold.” In fact, the reference to Bitcoin as digital gold has grown in popularity during the past few years. Is Bitcoin a digital substitute for gold? The answer is “Yes.” BTC has many of the same features and characteristics as gold. For example, both assets serve as an excellent store of value and unit of account. Additionally, BTC and gold can both be used as a medium of exchange. However, BTC is a much better medium of exchange because it’s stored in digital format, which makes it a substantially better payment mechanism than gold. Bitcoin is accepted by merchants to facilitate the payment of goods and services. It’s impossible to use physical gold for the payment of goods and services. This explains why Bitcoin is viewed as digital gold.
The majority of crypto investors believe that Bitcoin will ultimately surpass gold in terms of market capitalization. Currently, the market cap of gold is approximately $8 trillion. Therefore, in order for Bitcoin to surpass the global value of gold, the price must exceed $500,000 per coin. At first glance, this price level seems unattainable. However, we must remember that the price of BTC has increased over 1,000% since the pandemic low in March 2020. Therefore, Bitcoin could easily exceed $500,000 within the next 24 months.
Ethereum – Based on technical analysis, ETH is one of the most bullish coins in the crypto universe. Ethereum has easily outperformed Bitcoin in 2021. ETH recorded an all-time high on 10 November @ 4,865 (Chart #4). Currently, Ethereum is less than 2% from its ATH, while BTC is 16% below its ATH.
A new trendline was established on 20 July. Over the course of the past four months, the bullish trendline has remained fully intact (Chart #5). In order to invalidate the trendline, ETH would need to drop below 3,753. In percentage terms, Ethereum must decline by 20% to flip the chart pattern from bullish to bearish. Although this type of decline is certainly possible, it’s highly unlikely.
Polkadot – DOT has generated a substantial rally during the past 12 months. From its low in December 2020, Polkadot increased by 1,111%. A short-term top was formed on 4 November@ 55.06. DOT drifted lower throughout the month of November. It appears that an important bottom was formed on 29 November @ 32.33 (Chart #6). The chart pattern remains bullish as long as DOT stays above 25.27 on a weekly closing basis (Chart #7).
In terms of technical analysis, one of the most popular indicators is the Aroon Oscillator. This indicator works incredibly well at identifying important tops and bottoms in speculative assets like cryptocurrencies. The Aroon Oscillator is similar to the Relative Strength Index (RSI). It is a measuring device used to determine if an asset is overbought or oversold. The index fluctuates between -100 and +100. A reading of -100 indicates a market that is substantially oversold. A reading of +100 identifies a market that is heavily overbought.
The Aroon Oscillator performed incredibly well at identifying an important top and important bottom in DOT (Chart #8). On 20 July, the oscillator recorded a reading of -96, which indicates a deeply oversold market. The Aroon Oscillator was able to pinpoint the exact low in Polkadot @ 10.39. Polkadot generated a top on 4 November @ 55.06. The Aroon Oscillator successfully identified the top by recording a reading of +96. As you can see from the chart, the Aroon Oscillator is quite useful in its ability to recognize tops and bottoms.
Cryptocurrencies Remain Long-Term Bullish
Many traders in the global crypto community have been frustrated with the recent price action. The majority of coins and tokens have been trading sideways since April. The first four months of 2021 were incredibly bullish. However, the crypto markets have been boring and uneventful during the past seven months.
A growing number of traders in the crypto community believe that all digital currencies could be on the verge of a long-term move to the downside. They are speculating that Bitcoin could push all cryptocurrencies to much lower levels. Most likely, this bearish forecast will be wrong. Chart #9 clearly shows that Bitcoin has been trading sideways since April. Despite the recent narrow trading range, BTC remains in a long-term bull market. Therefore, the most probable outcome is that Bitcoin will generate a bullish breakout above 68,906 within the next 6 to 8 weeks. At least for now, cryptocurrencies are still long-term bullish.