A painful recovery in the Bitcoin (BTC) market earlier this week saw the price fall below $ 40,000 for the first time since September 2021.
Many analysts expected the decline to continue in the $ 30,000 to $ 35,000 range, but the price returned $ 40,000 in support again, and Bitcoin suddenly rose above $ 44,000 on Wednesday. This raised hopes that the $ 40,000 level could be where Bitcoin could bottom out before continuing its upward movement in 2022.
Jurrien Timmer, global macro manager at Fidelity Investments, called $ 40,000 “key support” and noted that bitcoin had been “technically oversold” near that level, which could lead to an improvement in the short term.
Daily BTC / USD price chart. Source: TradingView
Timmer’s positive outlook was based on three catalysts: Stochastic RSI, the so-called S-curve and Bitcoin Gold Ratio.
A clear bounce of the stochastic Bitcoin RSI
More specifically, Stochastic RSI is a momentum indicator that compares the closing price of an asset with its range of highs and lows over a specified period. The indicator fluctuates between 0 and 100, with an area above 80 indicating overbought and an area below 20 indicating oversold.
The indicator helps traders detect trend reversals by tracking the relationship between the upper and lower bands (% K) and the moving average of the same upper and lower bands (% D). Consequently, the market returns a buy signal if the% K wave crosses the% D wave from below in the oversold area.
Similarly, 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 rose above the% D wave, indicating a buying trend as the price held support above $ 40,000.
The BTC / USD price chart shows the latest reversal in the support level and the stochastic RSI values. Source: sincerity
“Bitcoin hit the $ 40,000 mark and is now technically oversold,” Timmer tweeted early Wednesday morning, adding that “the $ 40,000 level looks like $ 30,000 looks like a major support area.”
Price follows the S-curve pattern.
Timmer also identified a so-called demand curve, shown by the wave of a needle in the chart below, which has been useful in predicting the end of Bitcoin’s downward cycles since 2012.
Bitcoin supply and demand models. Source: sincerity
Between April and June 2021, the curve followed the BTC price movement which jumped by $ 30K and now works with the same support around $ 40K, which increases the probability that the next BTC bounce will reach around $ 100,000 levels.
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“The $ 30K level in 2021 provided support based on my demand model (S-curve model),” Timmer wrote, adding:
“It looks like the same level has risen to $ 40K, which in turn provides primary support. This is a moving target that usually provides high price support.”
BTC / gold ratio indicates oversold Bitcoin
Bitcoin also appears to be oversold, albeit “moderately” compared to the price action against gold. As Timmer noted, the so-called BTC / gold ratio fell to support of 22 after breaking twice at 37.4 in 2021.
Bitcoin vs gold. Source: FMRCo, Bloomberg, Fidelity.
Meanwhile, the downturn has pushed Bollinger Bands into oversold areas, which is a classic buy signal indicating that capital may begin to move from the gold markets to the bitcoin markets.
This prediction was in line with the latest cryptographic views of Bloomberg Intelligence. The report, written by Chief Commodities Strategist Mike McGlone, describes the capital turnover from gold to the bitcoin market. McGlone also noted that this trend will continue, especially against the background of the highest inflation rate in four decades, which is a result of the loose monetary policy of the US Federal Reserve.
“We see that gold is likely to rise to $ 2,000 per ounce by 2022, but bitcoin will rise faster,” McGlone wrote.