A painful bounce in the Bitcoin (BTC) market earlier this week sent the price below $40,000 for the first time since September 2021.
Many analysts expected the decline to continue towards the $30,000-$35,000 range, but the price regained $40,000 as support once again, and on Wednesday Bitcoin made a sudden move above $44,000. This has revived hopes that the $40,000 level might be where Bitcoin could bottom before continuing its upward movement in 2022.
Joren Timmer, Global Macro Director at Fidelity Investments, Call $40,000 is a “pivotal support,” noting that bitcoin has become “technically oversold” near the level, which could amount to a short-term bounce.
At the core of Timmer’s bullish forecast were three catalysts: the RSI stochastic, the so-called S-curve pattern and a measure of the bitcoin-gold ratio.
A clear bounce in the Bitcoin RSI stochastic
In detail, the Stochastic RSI is a momentum indicator that compares the closing price of an asset with its high-low range over a specified period. The indicator oscillates between 0 and 100, with an area above 80 indicating “overbought” and an area below 20 indicating an “oversold” condition.
The indicator helps traders spot trend reversals by tracking the relationship between the high and low band (%K) and the moving average of the same high and low band (%D). Therefore, the market returns a buy signal if wave %K crosses wave %D from below in the oversold area.
Likewise, it returns a sell signal if the %K line crosses the %D line from above in the overbought area.
As Timmer notes, Bitcoin’s %K wave surged above the %D wave, indicating a buying trend just as the price held support above $40,000.
“Bitcoin hit a streak in the sand at $40K and is now technically oversold.” chirp Timmer early Wednesday, adding that “like $30,000, the $40,000 level appears to be a pivotal support area.”
The price follows the S-curve pattern
Timmer has also identified a so-called demand curve – shown by the pin wave in the chart below – which has been useful in predicting the end of Bitcoin’s downward cycles since 2012.
Between April and June 2021, the curve followed the price action of BTC rebounding from $30K, and now, it is working with the same support near $40K, increasing the possibility that the next BTC bounce will reach levels near $100,000.
Related: Wall Street Still Unconvinced About $100K Bitcoin This Year: JPMorgan Survey
“The $30,000 level in 2021 provided support based on my demand model (S curve model),” books timer, adding:
“It appears that that same level has risen to $40K, once again providing primary support. It is a moving target that generally provides a major price support.”
BTC/Gold Ratio Indicates Bitcoin Oversold
Bitcoin also appears to be oversold, albeit “moderately” in relation to its price performance against gold. As Timmer noted, the so-called BTC/Gold ratio has fallen back to the support level at 22 after it was twice breached at 37.4 in 2021.
Meanwhile, the decline has pushed the Bollinger Bands into oversold territory, a classic buy signal that indicates that capital could start moving from the gold markets to the bitcoin markets.
Overall, these charts tell me that Bitcoin should get technical and fundamental support at $40K. That doesn’t mean it can’t go down, but $40K appears to be the new $30K. /End
– Joren Timmer (@TimmerFidelity) January 11 2022
This prediction was in line with the latest cryptographic view of Bloomberg Intelligence. The report, compiled by chief commodity strategist Mike McGlone, outlines the turnover of capital from gold to the bitcoin market. McGlone also noted that the trend will continue especially against the highest level of inflation in four decades which is the result of the loose monetary policies of the US Federal Reserve.
“We see gold likely to advance towards $2,000 an ounce by 2022, but bitcoin will increase more quickly,” McGlone wrote.
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