How will the Cryptocurrency Market fare in H1 2021?

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The beginning of 2021 gave a lot of all-time-high maximums for a number of cryptocurrencies, that in turn led to a series of positive forecasts for 2021. So, for example:

Citi analysts predict the price of Bitcoin at the level of $300,000 at the end of 2021. Although JPMorgan does not give exact numbers, it confirms that Bitcoin has the potential for further growth, as it competes with gold as an alternative means for storing capital.

Mike Novogratz (manager of cryptocurrency hedge fund) specifies at $65,000 as a realistic level,
According to the Stock-to-Flow (S2F), a Bitcoin price prediction system, BTC/USD will reach $100,000 by December 2021.

Analyst Mike McGlone from Bloomberg sets a goal of $50K in 2021 and $170K for 1 BTC in 2022.

To make a forecast for cryptocurrencies for at least a few months ahead, it is necessary to consider this extremely volatile market at the moment from 2 points of view:

  • emotional (behavioral economics);
  • from the point of view of the analysis of trading volumes in interaction with the price.

The attached graphs will help us with this.

1. Analysis of investors’ emotions.

Since the start of the pandemic panic of March 2020, the TOTAL index, which takes into account all cryptocurrencies, has grown by almost 1000%.

Pay attention to the growth dynamics (5) relative to the lines of the ascending channel. Starting from April to December, the index has increased at a stable moderate rate, being in the middle zone. But then the “explosion” followed, and the growth accelerated. The index moved to the upper zone, and then completely “went off the scale” above the upper line, entering an overbought state.

The fact that the market is overheated is also indicated by the Google Trends chart. The world is experiencing (6) the similar interest in the growth of Bitcoins, which was last seen in December 2017 (7). People see that BTC has twice surpassed the memorable peak of $20,000 and potentially experienced the characteristic FOMO (fear of missing out) effect inherent in their nature. This effect has been known for a long time, in particular, it is described in the book “Madness of Crowds” by Charles Mackay (1841).

2. Volume analysis

At the beginning of January, the trading volume was 3.5 times higher than the average! But what is about the price? It has not changed dramatically. Why? The most likely explanation is that the coins are flowing on a large scale from professionals (who were not afraid to buy crypto since March) to the mass of newcomers who rushed to buy cryptocurrencies under the influence of emotions.

If it is so (we tend to believe this based on observations of historical reversals not only of Bitcoin), then the market is experiencing a culmination, and in the future a large-scale correction is possible to one of the lines of the ascending channel, followed by a rebound (2 or 3 or 4).

That is why, in our opinion, the global plan can be as follows:

  • end of winter – beginning of spring → price correction
  • then to catch the rebound with faith in the continuation of the up-trend, which by and large scale has been existing since the very beginning of Bitcoin’s existence (is shown by blue arrows on the weekly chart of BTC/USD with a logarithmic scale).

This forecast represents FXOpen Markets Limited opinion only, it should not be construed as an offer, invitation or recommendation in respect to FXOpen Markets Limited products and services or as financial advice.

Cryptocurrency CFDs are not available to trade in all jurisdictions.

Source: FinExtra

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