A painful retracement in the Bitcoin (BTC) market earlier this week sent the price below $40,000 for the first time since September 2021.
Many analysts predicted the decline to continue toward the $30,000 to $35,000 range, but the price reclaimed $40,000 as support again and on Wednesday BTC made an abrupt move above $44,000. This rekindled hopes that the $40,000 level is perhaps where Bitcoin may bottom out before continuing its move higher in 2022.
Jurrien Timmer, the director of global macro at Fidelity Investments, called $40,000 a “pivotal support,” noting that Bitcoin has become “technically oversold” near the level, which may amount to a rebound in the short-term.
BTC/USD daily price chart. Source: TradingView
At the core of Timmer’s bullish outlook were three catalysts: a Stochastic RSI, the so-called S-curve model and a ratio metric of Bitcoin to gold.
A clear bounce in Bitcoin’s Stochastic RSI
In detail, the Stochastic RSI is a momentum indicator that compares an asset’s closing price with its high-low range over a specific period. The indicator oscillates between 0 and 100, with the area above 80 signaling “overbought” and the area below 20 alerting on “oversold” conditions.
The indicator assists traders in spotting trend reversals by tracking the relationship between its high-low range (%K) and the moving average of the same high-low range (%D). So, the market returns a buy signal if the %K wave crosses the %D wave from below in the oversold territory.
Similarly, it returns a sell signal if the %K line crosses %D line from above in the overbought territory.
As Timmer notes, Bitcoin’s %K wave has been rising above the %D wave, signaling a buy trend just as the price maintained support above $40,000.
BTC/USD price chart featuring its recent pivot at support and Stochastic RSI readings. Source: Fidelity
“Bitcoin has reached a line in the sand at $40,000 and is now technically oversold,” tweeted Timmer early Wednesday, adding that “like $30,000 the $40,000 level seems to be a pivotal support area.”
Price follows the S-curve model
Timmer further identified a so-called demand curve — as shown via the pin wave in the graph below — that has been instrumental in predicting the end of Bitcoin’s bearish cycles since 2012.
Bitcoin supply and demand models. Source: Fidelity
Between April and June 2021, the curve followed BTC price action in bouncing back from $30,000, and now, it has been acting as the same support near $40,000 which raising the possibility that the next BTC rebound could reach levels near $100,000.
Related: Wall Street still not convinced on Bitcoin $100K this year: JPMorgan survey
“The $30,000 level in 2021 provided support based on my demand model (S-curve model),” wrote Timmer, adding:
“That same level looks to have moved up to $40,000, providing fundamental support once again. It’s a moving target that generally provides a fundamental anchor for price.”
BTC/Gold ratio suggests Bitcoin is oversold
Bitcoin also appears oversold, albeit “moderately,” regarding its price-performance against gold. As Timmer noted, the so-called BTC/Gold ratio has slipped to support at 22 after topping out twice at 37.4 in 2021.
Bitcoin vs. Gold. Source: FMRCo, Bloomberg, Fidelity
Meanwhile, the plunge pushed the ratio’s Bollinger Bands into oversold territory, a classic buy signal that indicates that capital could start moving from gold to Bitcoin markets.
All in all, these charts tell me that Bitcoin should have both technical and fundamental support at $40k. It doesn’t mean it can’t go lower, but it looks like $40k is the new $30k. /END
— Jurrien Timmer (@TimmerFidelity) January 11, 2022
The prediction came in line with Bloomberg Intelligence’s recent crypto outlook. Penned by their senior commodity strategist, Mike McGlone, the report identified the capital rotation out of gold and into the Bitcoin market. McGlone also noted that the trend would continue especially against a near four-decade high in inflation which is the result of the U.S. Federal Reserve’s loose monetary policies.
“We see gold more likely to advance towards $2,000 an ounce by 2022, but Bitcoin to increase at a greater velocity,” McGlone wrote.
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