crypto

Review – After the Elon Musk Crypto Crash, Will Markets Go Back Up?

Digitex
• Dave Reiter
May 19, 2021

On February 8, the Bitcoin (BTC) community received incredibly bullish news when Tesla CEO, Elon Musk announced that his company had purchased $1.5 billion worth of BTC. In the same press release, Musk also revealed that the company would accept BTC as a method of payment for its Tesla automobiles. Immediately following the press release, the price of BTC exploded to the upside, gaining $6,881 (Chart #1).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 1

The announcement by Musk marked the beginning of a massive rally in Bitcoin. Over the course of the next two months, BTC increased 73%.  

Elon Musk quickly became one of the biggest supporters of the Bitcoin ecosystem. Of course, the entire crypto community was more than happy to embrace Musk as its newest member of the “family.” In addition to being CEO of Tesla, he is the wealthiest person on the planet. In fact, Tesla’s purchase of BTC was the major contributing factor to catapulting Musk ahead of Jeff Bezos as the world’s wealthiest person. Therefore, Musk was viewed as the perfect ambassador for the Bitcoin community.

Unfortunately, the happy relationship between Musk and the crypto community was short-lived. What happened? Why did Elon Musk suddenly withdraw his endorsement of the Bitcoin ecosystem? More importantly, how will this affect the future direction of Bitcoin along with the entire cryptocurrency universe? Let’s discuss the details.

Elon Musk Abruptly Changes His View on Bitcoin     

Elon Musk is one of the greatest entrepreneurs in modern American history. Musk rose to fame in the late 1990s during the internet mania, as one of the original founders of PayPal. Over the course of the past two decades, he has been responsible for creating a number of highly successful business ventures.

Musk is most famously known for his affiliation with Tesla, which was launched in July 2003. In addition to Tesla, Musk is also involved in the Boring Company and SpaceX. As mentioned, his entrepreneurial success recently turned Musk into the wealthiest person on the planet, according to Forbes Magazine.      

Over the course of the past few years, he has received an increasing amount of scrutiny from various environmental groups concerning Tesla’s commitment to producing energy-efficient vehicles. Additionally, the company’s automobile plants are closely monitored by several third parties in an effort to determine if Tesla is maintaining an eco-friendly working environment. Tesla promotes itself as an industry leader in using renewable energy to operate its manufacturing facilities. This probably explains why the company is constantly critiqued and observed by independent agencies.     

Bitcoin has come under frequent and repeated attack by a number of environmentally-friendly research groups concerning its potential damage to the environment, particularly as it relates to Bitcoin mining. These research groups claim that the Bitcoin mining process consumes a great deal of non-renewable energy and emits an ever-increasing amount of carbon into the atmosphere. They question whether Bitcoin’s damage to the environment is outweighed by its benefit as a long-term store of value. This has been an ongoing debate between Bitcoiners and environmental groups for the past few years. However, the debate has certainly intensified during the past few months.

This brings us back to Elon Musk and his endorsement of Bitcoin. Given the fact that Tesla is currently struggling with its own environmental issues, Elon and his inner circle of advisors probably determined that Tesla’s involvement with Bitcoin was a poorly-timed decision. Most likely, this explains why Musk withdrew his support of BTC as a medium of exchange.

Musk released his now-famous tweet on May 12, in which he tweeted that Tesla would no longer accept Bitcoin as a method of payment for its automobiles.

Musk cited “environmental concerns” as the reason why Tesla suspended its acceptance of Bitcoin. Immediately upon the release of Elon’s tweet, the price of BTC quickly began to roll over to the downside. By the end of the day, BTC had lost 9.5% of its value.

BTC continued to drop for the next three days, as Musk released a few additional negative comments about Bitcoin and many analysts are wondering if the bottom is in yet, after BTC briefly dove below $40,000 on May 19. So, where do we go from here? In order to answer this question, let’s examine Bitcoin based on technical analysis.

Analyzing Bitcoin Based on Technical Analysis

Bitcoin peaked @ 64,789 on April 14. During the past four weeks, BTC had dropped by more than 34% (Chart #2), only to tumble even lower below the $40,000 mark on May 19.

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 2

How does this sell-off compare with declines from other bull market cycles? Let’s analyze the most recent bull market cycle from 2017. BTC generated a dramatic rally in the second half of 2017, advancing 570% from September through December. However, Bitcoin also experienced two sharp declines of 39.7% and 30.0%, respectively (Chart #3).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 3

Even though the current decline is certainly painful for the Bitcoin bulls, it is quite normal when compared to other historical downturns.

Despite the current decline, the daily chart pattern for Bitcoin continues to remain bullish. The first sign of trouble for the bulls would be a weekly close below 37,409 (Chart #4). The BTC chart pattern will turn decidedly bearish if 37,409 is penetrated on a weekly closing basis.      

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 4  

In terms of the hourly chart, the bears are in control. In order to reverse the bearish momentum, the bulls need a daily close above 59,696 (Chart #5). The most likely scenario over the course of the next few weeks is a trading range.

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 5

BTC could easily remain locked in a trading range for the next several weeks. The important numbers to watch are 37,409 and 59,696.

Analyzing Ethereum Based on Technical Analysis

Although Bitcoin has garnered the majority of media attention during the past few days, Elon’s comments have wreaked havoc on the entire cryptocurrency universe. Almost all coins and tokens have suffered brutal declines. Let’s briefly review Ethereum (ETH) from a technical perspective.

Prior to the Tesla news, ETH was in the middle of a dramatic rally dating back to the pandemic low in March 2020. ETH recorded a major low on 13 March 2020 @ 89.50. The cryptocurrency preceded to rally 4,783% during the next 14 months, reaching its peak on 12 May @ 4,370.76.

The very next day, Elon Musk released his tweet concerning Tesla’s plan to stop accepting Bitcoin. Although Elon’s tweet was not aimed directly at Ethereum, it nevertheless sparked a brutal sell-off in ETH. Within 72 hours, ETH had declined 28.2% (Chart #6).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 6

In spite of the sharp decline, the Ethereum chart pattern remains persistently bullish. It would take a weekly close below 1,937 to flip the chart from bullish to bearish (Chart #7).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 7

This type of price drop is certainly possible. However, it’s highly unlikely. Going forward, ETH will most likely remain in a trading range for the next several weeks, as it consolidates the recent sharp decline.

As long as the price stays above 1,937, ETH should easily create a new all-time high above 4,370 by the end of 2021.

All Signs Point to Higher Crypto Prices

It’s very easy for crypto traders and investors to become fixated on short-term fluctuations in the crypto markets. Many traders (particularly novice traders) have a tendency to focus only on the negative crypto news while ignoring the long-term bullish outlook.

Bitcoin, Ethereum and other cryptocurrencies have received a tremendous amount of bullish news during the past several months, particularly at the institutional level. A wave of institutional money has flooded into the crypto universe during the past nine months. This is extremely bullish from a “big picture” multi-year perspective.

While it’s certainly possible that Bitcoin and other cryptocurrencies could experience another sharp leg to the downside, this won’t change the bullish outlook from a long-term global perspective. Cryptocurrencies are in the early stages of completely disrupting industries that have been in existence for hundreds of years. There will be several bumps along the way (e.g. Elon Musk’s tweets). However, investors who can tolerate the short-term volatility will be rewarded with long-term success.

 Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

May 19, 2021
Digitex

Review – After the Elon Musk Crypto Crash, Will Markets Go Back Up?

Dave Reiter
crypto

On February 8, the Bitcoin (BTC) community received incredibly bullish news when Tesla CEO, Elon Musk announced that his company had purchased $1.5 billion worth of BTC. In the same press release, Musk also revealed that the company would accept BTC as a method of payment for its Tesla automobiles. Immediately following the press release, the price of BTC exploded to the upside, gaining $6,881 (Chart #1).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 8

The announcement by Musk marked the beginning of a massive rally in Bitcoin. Over the course of the next two months, BTC increased 73%.  

Elon Musk quickly became one of the biggest supporters of the Bitcoin ecosystem. Of course, the entire crypto community was more than happy to embrace Musk as its newest member of the “family.” In addition to being CEO of Tesla, he is the wealthiest person on the planet. In fact, Tesla’s purchase of BTC was the major contributing factor to catapulting Musk ahead of Jeff Bezos as the world’s wealthiest person. Therefore, Musk was viewed as the perfect ambassador for the Bitcoin community.

Unfortunately, the happy relationship between Musk and the crypto community was short-lived. What happened? Why did Elon Musk suddenly withdraw his endorsement of the Bitcoin ecosystem? More importantly, how will this affect the future direction of Bitcoin along with the entire cryptocurrency universe? Let’s discuss the details.

Elon Musk Abruptly Changes His View on Bitcoin     

Elon Musk is one of the greatest entrepreneurs in modern American history. Musk rose to fame in the late 1990s during the internet mania, as one of the original founders of PayPal. Over the course of the past two decades, he has been responsible for creating a number of highly successful business ventures.

Musk is most famously known for his affiliation with Tesla, which was launched in July 2003. In addition to Tesla, Musk is also involved in the Boring Company and SpaceX. As mentioned, his entrepreneurial success recently turned Musk into the wealthiest person on the planet, according to Forbes Magazine.      

Over the course of the past few years, he has received an increasing amount of scrutiny from various environmental groups concerning Tesla’s commitment to producing energy-efficient vehicles. Additionally, the company’s automobile plants are closely monitored by several third parties in an effort to determine if Tesla is maintaining an eco-friendly working environment. Tesla promotes itself as an industry leader in using renewable energy to operate its manufacturing facilities. This probably explains why the company is constantly critiqued and observed by independent agencies.     

Bitcoin has come under frequent and repeated attack by a number of environmentally-friendly research groups concerning its potential damage to the environment, particularly as it relates to Bitcoin mining. These research groups claim that the Bitcoin mining process consumes a great deal of non-renewable energy and emits an ever-increasing amount of carbon into the atmosphere. They question whether Bitcoin’s damage to the environment is outweighed by its benefit as a long-term store of value. This has been an ongoing debate between Bitcoiners and environmental groups for the past few years. However, the debate has certainly intensified during the past few months.

This brings us back to Elon Musk and his endorsement of Bitcoin. Given the fact that Tesla is currently struggling with its own environmental issues, Elon and his inner circle of advisors probably determined that Tesla’s involvement with Bitcoin was a poorly-timed decision. Most likely, this explains why Musk withdrew his support of BTC as a medium of exchange.

Musk released his now-famous tweet on May 12, in which he tweeted that Tesla would no longer accept Bitcoin as a method of payment for its automobiles.

Musk cited “environmental concerns” as the reason why Tesla suspended its acceptance of Bitcoin. Immediately upon the release of Elon’s tweet, the price of BTC quickly began to roll over to the downside. By the end of the day, BTC had lost 9.5% of its value.

BTC continued to drop for the next three days, as Musk released a few additional negative comments about Bitcoin and many analysts are wondering if the bottom is in yet, after BTC briefly dove below $40,000 on May 19. So, where do we go from here? In order to answer this question, let’s examine Bitcoin based on technical analysis.

Analyzing Bitcoin Based on Technical Analysis

Bitcoin peaked @ 64,789 on April 14. During the past four weeks, BTC had dropped by more than 34% (Chart #2), only to tumble even lower below the $40,000 mark on May 19.

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 9

How does this sell-off compare with declines from other bull market cycles? Let’s analyze the most recent bull market cycle from 2017. BTC generated a dramatic rally in the second half of 2017, advancing 570% from September through December. However, Bitcoin also experienced two sharp declines of 39.7% and 30.0%, respectively (Chart #3).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 10

Even though the current decline is certainly painful for the Bitcoin bulls, it is quite normal when compared to other historical downturns.

Despite the current decline, the daily chart pattern for Bitcoin continues to remain bullish. The first sign of trouble for the bulls would be a weekly close below 37,409 (Chart #4). The BTC chart pattern will turn decidedly bearish if 37,409 is penetrated on a weekly closing basis.      

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 11  

In terms of the hourly chart, the bears are in control. In order to reverse the bearish momentum, the bulls need a daily close above 59,696 (Chart #5). The most likely scenario over the course of the next few weeks is a trading range.

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 12

BTC could easily remain locked in a trading range for the next several weeks. The important numbers to watch are 37,409 and 59,696.

Analyzing Ethereum Based on Technical Analysis

Although Bitcoin has garnered the majority of media attention during the past few days, Elon’s comments have wreaked havoc on the entire cryptocurrency universe. Almost all coins and tokens have suffered brutal declines. Let’s briefly review Ethereum (ETH) from a technical perspective.

Prior to the Tesla news, ETH was in the middle of a dramatic rally dating back to the pandemic low in March 2020. ETH recorded a major low on 13 March 2020 @ 89.50. The cryptocurrency preceded to rally 4,783% during the next 14 months, reaching its peak on 12 May @ 4,370.76.

The very next day, Elon Musk released his tweet concerning Tesla’s plan to stop accepting Bitcoin. Although Elon’s tweet was not aimed directly at Ethereum, it nevertheless sparked a brutal sell-off in ETH. Within 72 hours, ETH had declined 28.2% (Chart #6).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 13

In spite of the sharp decline, the Ethereum chart pattern remains persistently bullish. It would take a weekly close below 1,937 to flip the chart from bullish to bearish (Chart #7).

Review - After the Elon Musk Crypto Crash, Will Markets Go Back Up? 14

This type of price drop is certainly possible. However, it’s highly unlikely. Going forward, ETH will most likely remain in a trading range for the next several weeks, as it consolidates the recent sharp decline.

As long as the price stays above 1,937, ETH should easily create a new all-time high above 4,370 by the end of 2021.

All Signs Point to Higher Crypto Prices

It’s very easy for crypto traders and investors to become fixated on short-term fluctuations in the crypto markets. Many traders (particularly novice traders) have a tendency to focus only on the negative crypto news while ignoring the long-term bullish outlook.

Bitcoin, Ethereum and other cryptocurrencies have received a tremendous amount of bullish news during the past several months, particularly at the institutional level. A wave of institutional money has flooded into the crypto universe during the past nine months. This is extremely bullish from a “big picture” multi-year perspective.

While it’s certainly possible that Bitcoin and other cryptocurrencies could experience another sharp leg to the downside, this won’t change the bullish outlook from a long-term global perspective. Cryptocurrencies are in the early stages of completely disrupting industries that have been in existence for hundreds of years. There will be several bumps along the way (e.g. Elon Musk’s tweets). However, investors who can tolerate the short-term volatility will be rewarded with long-term success.

 Digitex writers and/or guest authors may or may not have a vested interest in the Digitex project and/or other businesses mentioned throughout the site. None of the content on Digitex is investment advice nor is it a replacement for advice from a certified financial planner.

Latest News

bitcoin

$300K Bitcoin by 2022? Veteran TA Says It’s Possible, Here’s Why

Digitex Futures
• Dave Reiter
April 9, 2021

Bitcoin (BTC) has been in existence since Jan 3, 2009, when Satoshi Nakamoto mined the first 50 bitcoins into existence. Today, it seems almost impossible to believe that BTC was practically worthless for the first two years of its existence. Of course, even the most bullish Bitcoin enthusiasts were completely unprepared for the spectacular price increase that would occur over the course of the next decade.

Even though BTC has advanced exponentially since 2009, many crypto experts are forecasting substantially higher prices for the remainder of this decade. Will Bitcoin continue to grind its way higher despite the fact that prices have already increased over 400% during the past six months? Let’s take a closer look.

Obviously, accurately determining the future price of any asset class is incredibly difficult. However, we can improve our forecasting results by examining price patterns from previous bull market cycles. Bitcoin is a difficult asset to analyze because it has only been in existence for a relatively short period of time. Consequently, we have a fairly small sample of data to analyze.

It’s much easier to forecast a market with 100 years of data in comparison to an asset class like cryptocurrencies, with only 10 years of historical data. Despite the fact that BTC has a limited supply of historical data, there does appear to be a reliable price pattern that has emerged within the past decade. Let’s review the data.

Bitcoin Halving Is The “Key” To Future Price Direction

Basic economics teaches us that the price of goods and services is directly influenced by its underlying supply. As the supply increases, prices will decline. Conversely, as the supply decreases, prices will rise. This basic formula is known as the law of supply and demand, which was made famous by Adam Smith in his book, The Wealth of Nations, first published in 1776.

By examining Bitcoin’s price pattern during the past decade, it becomes quite clear that BTC has been heavily influenced by the law of supply and demand since its inception in 2009. For those who follow BTC on a regular basis, you are probably aware that all Bitcoin transactions must be verified prior to being permanently added to the blockchain.

Miners are responsible for verifying the legitimacy of each transaction. In exchange for their work, miners are rewarded with Bitcoin. When Satoshi Nakamoto released the original Bitcoin white paper in October 2008, she/he included a detailed report outlining the reward schedule for Bitcoin miners.

Based on Nakamoto’s white paper, the mining reward would be systematically reduced approximately once every four years. By lowering the mining reward, Nakamoto was essentially shrinking the number of Bitcoin in circulation. Remember, prices will rise as the underlying supply is reduced.

The reduction of mining rewards in the Bitcoin ecosystem is known as a “halving.” So far, the Bitcoin community has experienced three halving cycles since Nakamoto launched BTC in January 2009. The initial mining reward in 2009 was 50 BTC. The reward has been diminished by 50% following each halving date. The current mining reward is 6.25 BTC. This number will be reduced to 3.125 BTC on May 13, 2024.

Did the halving cycles follow Adam Smith’s law of supply and demand by pushing up the price of BTC in the wake of a supply reduction? Let’s review the results.

Halving Dates and Mining Rewards:

  • November 28, 2012 – mining reward reduced to 25 BTC
  • July 9, 2016 – mining reward reduced to 12.5 BTC
  • May 11, 2020 – mining reward reduced to 6.25 BTC
  • May 13, 2024 – mining reward reduced to 3.125 BTC

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 15

As you can see from the table, the first halving date occurred on November 28, 2012. The price on the halving date was $12.25. 18 months later, BTC had risen to $582.88. In percentage terms, Bitcoin increased by 4,658%. Clearly, the first halving cycle was extremely bullish for BTC.

Let’s examine the second halving date, which officially arrived on July 9, 2016. BTC was trading at $647.62. Once again, the reduction in mining rewards had an incredibly bullish impact on the price, as Bitcoin increased 2,146% over the course of the next 18 months.

The third halving arrived approximately 11 months ago on May 11, 2020, with a Bitcoin price tag of $8,638.11. The 18-month window will close on January 11, 2022. Will the halving cycle create another explosion in the price of Bitcoin? So far, the answer appears to be “Yes.”

BTC has advanced approximately 550% since the halving occurred in May 2020. The average price increase during the previous two halving events was 3,402%.

If Bitcoin follows the same path as the previous two halving cycles, the price will be hovering near $302,500 in January 2022.

Based on the fact that BTC is currently trading at $58,500 this price forecast seems to be wildly optimistic. However, since its inception in January 2009, Bitcoin has recorded several spectacular price increases. Therefore, it’s certainly possible that BTC could be approaching  $300K in early-2022.

The fourth BTC halving cycle is scheduled to commence on 13 May 2024, which will reduce the mining reward to 3.125 BTC. Financial historians and investment professionals have noted on several occasions that Bitcoin is the only major asset class that experiences a reduction in the circulating supply on a pre-determined basis.

This explains why BTC has achieved such an explosive price move following each halving date. Professional economists point to the Bitcoin halving cycle as verifiable proof that the law of supply and demand still works as long as speculative markets are allowed to be freely traded without being manipulated by a third party.

Examining Bitcoin with Technical Analysis

Bitcoin’s price action has been extremely bullish over the course of the past several months. Let’s examine a few popular technical indicators in an effort to determine the future price direction of BTC.

Chart 1 below covers six months of recent price action. As you can see from the chart, Bitcoin has generated a series of higher highs dating back to October 2020. This is a classic sign of a bull market. Whenever a speculative asset continues to make a series of higher highs, this is a clear indication that the underlying momentum is heavily in favor of the bulls.

The most recent high was recorded on March 15 @ 61,749. Therefore, in order to maintain the bullish momentum, BTC must penetrate 61,749 within the next few weeks.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 16

Chart 2 includes approximately seven months of historical data. The green line on the chart represents the 50-day simple moving average (SMA) of Bitcoin. In terms of technical analysis, moving averages are one of the most popular indicators within the trading community. They have been used by traders and investors for 120 years, dating back to 1901.

Moving averages can be divided into several different time frames. In regard to Bitcoin, the 50-day SMA has generated the most consistent results based on historical testing.

As you can see from the chart, a buy signal was generated on October 12, 2020, when BTC moved above the 50-day SMA @ 11,093. Bitcoin has remained above its 50-day SMA for six consecutive months. As long as the price stays above the green line on the chart, BTC will continue to remain bullish.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 17

Chart 3 displays four months of recent price activity. Bitcoin is currently trading well above the trendline. In order to drop below the bullish trendline, the price must fall below 48,609. At least for now, this type of price decline is highly unlikely.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 18

Chart 4 contains intraday price action for the past two weeks. BTC has struggled to penetrate 60K. In fact, Bitcoin has made six unsuccessful attempts to exceed 60,000 since March 18. Most likely, BTC will successfully push above 60K within the next few weeks. The momentum is still clearly in favor of the bulls.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 19

Chart 5 includes a list of the important Fibonacci support levels. BTC is currently trading comfortably above the Fib support levels. The first sign of trouble for the Bitcoin bulls would be a daily close below 50,595. It’s certainly possible for BTC to drop below the Fib support level. However, the most likely scenario is a continuation of higher prices.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 20

Based on technical analysis, Bitcoin is clearly in the middle of a raging bull market. All of the major technical indicators are currently forecasting higher prices. At least for now, the path of least resistance is to the upside.

April 9, 2021
Digitex Futures

$300K Bitcoin by 2022? Veteran TA Says It’s Possible, Here’s Why

Dave Reiter
bitcoin

Bitcoin (BTC) has been in existence since Jan 3, 2009, when Satoshi Nakamoto mined the first 50 bitcoins into existence. Today, it seems almost impossible to believe that BTC was practically worthless for the first two years of its existence. Of course, even the most bullish Bitcoin enthusiasts were completely unprepared for the spectacular price increase that would occur over the course of the next decade.

Even though BTC has advanced exponentially since 2009, many crypto experts are forecasting substantially higher prices for the remainder of this decade. Will Bitcoin continue to grind its way higher despite the fact that prices have already increased over 400% during the past six months? Let’s take a closer look.

Obviously, accurately determining the future price of any asset class is incredibly difficult. However, we can improve our forecasting results by examining price patterns from previous bull market cycles. Bitcoin is a difficult asset to analyze because it has only been in existence for a relatively short period of time. Consequently, we have a fairly small sample of data to analyze.

It’s much easier to forecast a market with 100 years of data in comparison to an asset class like cryptocurrencies, with only 10 years of historical data. Despite the fact that BTC has a limited supply of historical data, there does appear to be a reliable price pattern that has emerged within the past decade. Let’s review the data.

Bitcoin Halving Is The “Key” To Future Price Direction

Basic economics teaches us that the price of goods and services is directly influenced by its underlying supply. As the supply increases, prices will decline. Conversely, as the supply decreases, prices will rise. This basic formula is known as the law of supply and demand, which was made famous by Adam Smith in his book, The Wealth of Nations, first published in 1776.

By examining Bitcoin’s price pattern during the past decade, it becomes quite clear that BTC has been heavily influenced by the law of supply and demand since its inception in 2009. For those who follow BTC on a regular basis, you are probably aware that all Bitcoin transactions must be verified prior to being permanently added to the blockchain.

Miners are responsible for verifying the legitimacy of each transaction. In exchange for their work, miners are rewarded with Bitcoin. When Satoshi Nakamoto released the original Bitcoin white paper in October 2008, she/he included a detailed report outlining the reward schedule for Bitcoin miners.

Based on Nakamoto’s white paper, the mining reward would be systematically reduced approximately once every four years. By lowering the mining reward, Nakamoto was essentially shrinking the number of Bitcoin in circulation. Remember, prices will rise as the underlying supply is reduced.

The reduction of mining rewards in the Bitcoin ecosystem is known as a “halving.” So far, the Bitcoin community has experienced three halving cycles since Nakamoto launched BTC in January 2009. The initial mining reward in 2009 was 50 BTC. The reward has been diminished by 50% following each halving date. The current mining reward is 6.25 BTC. This number will be reduced to 3.125 BTC on May 13, 2024.

Did the halving cycles follow Adam Smith’s law of supply and demand by pushing up the price of BTC in the wake of a supply reduction? Let’s review the results.

Halving Dates and Mining Rewards:

  • November 28, 2012 – mining reward reduced to 25 BTC
  • July 9, 2016 – mining reward reduced to 12.5 BTC
  • May 11, 2020 – mining reward reduced to 6.25 BTC
  • May 13, 2024 – mining reward reduced to 3.125 BTC

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 21

As you can see from the table, the first halving date occurred on November 28, 2012. The price on the halving date was $12.25. 18 months later, BTC had risen to $582.88. In percentage terms, Bitcoin increased by 4,658%. Clearly, the first halving cycle was extremely bullish for BTC.

Let’s examine the second halving date, which officially arrived on July 9, 2016. BTC was trading at $647.62. Once again, the reduction in mining rewards had an incredibly bullish impact on the price, as Bitcoin increased 2,146% over the course of the next 18 months.

The third halving arrived approximately 11 months ago on May 11, 2020, with a Bitcoin price tag of $8,638.11. The 18-month window will close on January 11, 2022. Will the halving cycle create another explosion in the price of Bitcoin? So far, the answer appears to be “Yes.”

BTC has advanced approximately 550% since the halving occurred in May 2020. The average price increase during the previous two halving events was 3,402%.

If Bitcoin follows the same path as the previous two halving cycles, the price will be hovering near $302,500 in January 2022.

Based on the fact that BTC is currently trading at $58,500 this price forecast seems to be wildly optimistic. However, since its inception in January 2009, Bitcoin has recorded several spectacular price increases. Therefore, it’s certainly possible that BTC could be approaching  $300K in early-2022.

The fourth BTC halving cycle is scheduled to commence on 13 May 2024, which will reduce the mining reward to 3.125 BTC. Financial historians and investment professionals have noted on several occasions that Bitcoin is the only major asset class that experiences a reduction in the circulating supply on a pre-determined basis.

This explains why BTC has achieved such an explosive price move following each halving date. Professional economists point to the Bitcoin halving cycle as verifiable proof that the law of supply and demand still works as long as speculative markets are allowed to be freely traded without being manipulated by a third party.

Examining Bitcoin with Technical Analysis

Bitcoin’s price action has been extremely bullish over the course of the past several months. Let’s examine a few popular technical indicators in an effort to determine the future price direction of BTC.

Chart 1 below covers six months of recent price action. As you can see from the chart, Bitcoin has generated a series of higher highs dating back to October 2020. This is a classic sign of a bull market. Whenever a speculative asset continues to make a series of higher highs, this is a clear indication that the underlying momentum is heavily in favor of the bulls.

The most recent high was recorded on March 15 @ 61,749. Therefore, in order to maintain the bullish momentum, BTC must penetrate 61,749 within the next few weeks.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 22

Chart 2 includes approximately seven months of historical data. The green line on the chart represents the 50-day simple moving average (SMA) of Bitcoin. In terms of technical analysis, moving averages are one of the most popular indicators within the trading community. They have been used by traders and investors for 120 years, dating back to 1901.

Moving averages can be divided into several different time frames. In regard to Bitcoin, the 50-day SMA has generated the most consistent results based on historical testing.

As you can see from the chart, a buy signal was generated on October 12, 2020, when BTC moved above the 50-day SMA @ 11,093. Bitcoin has remained above its 50-day SMA for six consecutive months. As long as the price stays above the green line on the chart, BTC will continue to remain bullish.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 23

Chart 3 displays four months of recent price activity. Bitcoin is currently trading well above the trendline. In order to drop below the bullish trendline, the price must fall below 48,609. At least for now, this type of price decline is highly unlikely.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 24

Chart 4 contains intraday price action for the past two weeks. BTC has struggled to penetrate 60K. In fact, Bitcoin has made six unsuccessful attempts to exceed 60,000 since March 18. Most likely, BTC will successfully push above 60K within the next few weeks. The momentum is still clearly in favor of the bulls.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 25

Chart 5 includes a list of the important Fibonacci support levels. BTC is currently trading comfortably above the Fib support levels. The first sign of trouble for the Bitcoin bulls would be a daily close below 50,595. It’s certainly possible for BTC to drop below the Fib support level. However, the most likely scenario is a continuation of higher prices.

$300K Bitcoin by 2022? Veteran TA Says It's Possible, Here's Why 26

Based on technical analysis, Bitcoin is clearly in the middle of a raging bull market. All of the major technical indicators are currently forecasting higher prices. At least for now, the path of least resistance is to the upside.

Latest News

Will the Next Bitcoin Halving Unleash a New Crypto Bull Market? 27

Will the Next Bitcoin Halving Unleash a New Crypto Bull Market?

Crypto Industry
Digitex Futures
Trading
• Dave Reiter
February 27, 2020

With the exception of May and June, 2019 was a rather uneventful year for Bitcoin and the entire crypto universe. Bitcoin traded sideways-to-lower following its price peak on 26 June (see Chart #1 below). Although the number-one cryptocurrency has started 2020 with a bang representing a 44% rate of return so far this year, cryptocurrencies still need some type of event to serve to reestablish a new bull market. It wasn’t the launch of Bakkt, so could it be the next Bitcoin halving?

The Next Crypto Bull Market

Many traders and investors within the crypto community expected the launch of Bakkt to generate a new wave of buying pressure for BTC and other cryptocurrencies. However, buying never materialized. In fact, Bitcoin was much lower shortly afterward in comparison to the Bakkt launch date on 23 September (see Chart #2 below). 

What will it take to unleash a new crypto bull market? Has it already begun? Many cryptocurrency traders are convinced that the next Bitcoin halving in May 2020 will create a powerful new bull market. But what is the Bitcoin halving and why could it generate a new run? Let’s explore the details.

Bitcoin Halving Has a Perfect Track Record for Launching Bull Markets       

Arguably, Bitcoin’s greatest feature is the fact that Satoshi Nakamoto only created 21 million coins. There will never be more than 21 million bitcoins in circulation. It was pure “genius” for Nakamoto to strictly limit the supply of BTC. This is what separates BTC from fiat currencies. Without having a limited amount of bitcoins, cryptocurrencies would be no better than paper currencies.

BTC and other cryptos would eventually become worthless in terms of purchasing power. Of course, this is exactly what has befallen fiat currencies. Their purchasing power has slowly eroded over the course of the past several decades. By restricting the number of bitcoins, cryptocurrency investors will never have to deal with this decline in purchasing power. This is what makes cryptocurrencies an excellent store of value.

As you know, bitcoins are entered into circulation through the process of mining. Essentially, BTC mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. Added together, these past transactions create a chain of blocks, known as a blockchain. Miners are rewarded when a new block is discovered. Currently, the reward is 12.5 BTC.

In addition to limiting the number of bitcoins to 21 million, Nakamoto made a brilliant decision to gradually reduce the mining reward as new bitcoins were added into circulation. The number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, which should occur approximately every four years. Ultimately, this will result in a total of 21 million Bitcoins in circulation.                 

The Importance of Capping Bitcoin’s Supply

Why was Nakamoto’s decision to reduce the mining reward such a brilliant decision? Because it dramatically increases the odds of a steady increase in the price of Bitcoin well into the future. A reduction in the BTC mining reward is known as a “Bitcoin halving.” 

Whenever a halving occurs, it automatically reduces the BTC mining reward by 50%. As discussed earlier, the current Bitcoin mining reward is 12.5 bitcoins for the discovery of a new block. The next Bitcoin halving is scheduled for May 2020, when the mining reward will be cut in half to 6.25 BTC. 

What has happened to the price of BTC during previous Bitcoin halving occurrences? Let’s examine the data.

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BUY DGTX
BTC Price After Bitcoin Halving

The first Bitcoin halving occurred on 28 November 2012, when the mining reward was reduced to 25 bitcoins. At the time of the halving, the price of BTC was approximately $11. Over the course of the next 12 months, Bitcoin enjoyed a dramatic bull market. BTC reached a peak of $1,135 on 29 November 2013. 

This represents an amazing price increase of 10,218%. 

The next Bitcoin halving occurred on 16 July 2016. The mining reward was reduced to 12.5 bitcoins per block. What happened to the price of BTC following the reduction in the mining reward? Initially, nothing. 

In fact, for several months after the mining reward was reduced, BTC was locked in a boring trading range between $500 and $800. The trading range continued for five months, July through December 2016.

Many traders in the crypto community began to doubt whether the 2016 halving would generate a substantial rally similar to the 2012 halving. Finally, on 21 December 2016, BTC generated a bullish breakout, when the price penetrated $800. The halving rally was underway! 

Bitcoin exploded to the upside throughout the next 12 months. The final top was obtained on 18 December 2017 @ $19,862. In percentage terms, BTC enjoyed a rally of 2,847%. Please review the following table. 

Bitcoin Halving

2012 – 2016 

Halving Date         Bitcoin Price          Price Peak             Peak Date  % Increase

 

28 Nov 2012          11                           1,135                      29 Nov 2013  10,218%

 

16 Jul 2016            674                         19,862                   18 Dec 2017  2,847%

 

Source  Forbes Magazine

Will the May 2020 Bitcoin Halving Unleash a Bull Market? 

Of course, it’s impossible to predict the future direction of any speculative asset. However, based on previous Bitcoin halving occurrences, it’s fairly safe to assume that BTC will generate some type of rally following the May 2020 halving. Let’s attempt to calculate an educated guess regarding the size of the rally.

Unfortunately, we only have two previous Bitcoin halving episodes. Therefore, our data sample is very small. Let’s assume that BTC is trading near its current price of $7,400 in May 2020. Given the fact that BTC is trading at a substantially higher price compared to the 2012 halving and 2016 halving, it’s highly unlikely that Bitcoin will enjoy such a dramatic percentage price increase for the May 2020 halving.

In fact, you can see that there was a dramatic reduction in percentage gains in 2016 versus 2012. Bitcoin’s gain from the 2016 halving was 72% less than the gain from the 2012 halving.

 In an attempt to calculate a price forecast for the upcoming May 2020 halving, let’s assume that the Bitcoin halving rally will be 72% less than the 2016 halving rally. If we use these numbers in our calculation, we can conclude that BTC will enjoy a substantial gain of 797%. 

Based on a price of $7,400, Bitcoin will reach a peak of $58,978 within 12 to 18 months from May 2020. Therefore, the price peak will occur between May 2021 and November 2021.

Of course, nobody should take these forecasts too seriously. Several things can change within the crypto universe before May 2020. Additionally, there is absolutely no guarantee that Bitcoin will rally following the May 2020 halving. There is no rule which says that BTC must rally following each halving. 

However, given the fact that the BTC mining reward will be cut in half, it’s probably safe to assume that there will be at least a modest rally. Without question, it will be very exciting to watch the price of Bitcoin as we approach the May 2020 halving.

JOIN NOW

Full Disclosure: I own BTC on the spot market, BTC futures and BTC exchange-traded notes.  

 

 

February 27, 2020
Crypto Industry
Digitex Futures
Trading

Will the Next Bitcoin Halving Unleash a New Crypto Bull Market?

Dave Reiter
Will the Next Bitcoin Halving Unleash a New Crypto Bull Market? 28

With the exception of May and June, 2019 was a rather uneventful year for Bitcoin and the entire crypto universe. Bitcoin traded sideways-to-lower following its price peak on 26 June (see Chart #1 below). Although the number-one cryptocurrency has started 2020 with a bang representing a 44% rate of return so far this year, cryptocurrencies still need some type of event to serve to reestablish a new bull market. It wasn’t the launch of Bakkt, so could it be the next Bitcoin halving?

The Next Crypto Bull Market

Many traders and investors within the crypto community expected the launch of Bakkt to generate a new wave of buying pressure for BTC and other cryptocurrencies. However, buying never materialized. In fact, Bitcoin was much lower shortly afterward in comparison to the Bakkt launch date on 23 September (see Chart #2 below). 

What will it take to unleash a new crypto bull market? Has it already begun? Many cryptocurrency traders are convinced that the next Bitcoin halving in May 2020 will create a powerful new bull market. But what is the Bitcoin halving and why could it generate a new run? Let’s explore the details.

Bitcoin Halving Has a Perfect Track Record for Launching Bull Markets       

Arguably, Bitcoin’s greatest feature is the fact that Satoshi Nakamoto only created 21 million coins. There will never be more than 21 million bitcoins in circulation. It was pure “genius” for Nakamoto to strictly limit the supply of BTC. This is what separates BTC from fiat currencies. Without having a limited amount of bitcoins, cryptocurrencies would be no better than paper currencies.

BTC and other cryptos would eventually become worthless in terms of purchasing power. Of course, this is exactly what has befallen fiat currencies. Their purchasing power has slowly eroded over the course of the past several decades. By restricting the number of bitcoins, cryptocurrency investors will never have to deal with this decline in purchasing power. This is what makes cryptocurrencies an excellent store of value.

As you know, bitcoins are entered into circulation through the process of mining. Essentially, BTC mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. Added together, these past transactions create a chain of blocks, known as a blockchain. Miners are rewarded when a new block is discovered. Currently, the reward is 12.5 BTC.

In addition to limiting the number of bitcoins to 21 million, Nakamoto made a brilliant decision to gradually reduce the mining reward as new bitcoins were added into circulation. The number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, which should occur approximately every four years. Ultimately, this will result in a total of 21 million Bitcoins in circulation.                 

The Importance of Capping Bitcoin’s Supply

Why was Nakamoto’s decision to reduce the mining reward such a brilliant decision? Because it dramatically increases the odds of a steady increase in the price of Bitcoin well into the future. A reduction in the BTC mining reward is known as a “Bitcoin halving.” 

Whenever a halving occurs, it automatically reduces the BTC mining reward by 50%. As discussed earlier, the current Bitcoin mining reward is 12.5 bitcoins for the discovery of a new block. The next Bitcoin halving is scheduled for May 2020, when the mining reward will be cut in half to 6.25 BTC. 

What has happened to the price of BTC during previous Bitcoin halving occurrences? Let’s examine the data.

Pssst… It isn’t just Bitcoin that’s got sky’s the limit potential… If you want to get involved in the next revolution in crypto derivatives trading, you can buy our native exchange token DGTX by clicking on the button below. You’ll get an instant transaction with zero slippage buying directly from the Digitex Treasury including a 10% bonus airdropped into your account upon the mainnet launch.

BUY DGTX
BTC Price After Bitcoin Halving

The first Bitcoin halving occurred on 28 November 2012, when the mining reward was reduced to 25 bitcoins. At the time of the halving, the price of BTC was approximately $11. Over the course of the next 12 months, Bitcoin enjoyed a dramatic bull market. BTC reached a peak of $1,135 on 29 November 2013. 

This represents an amazing price increase of 10,218%. 

The next Bitcoin halving occurred on 16 July 2016. The mining reward was reduced to 12.5 bitcoins per block. What happened to the price of BTC following the reduction in the mining reward? Initially, nothing. 

In fact, for several months after the mining reward was reduced, BTC was locked in a boring trading range between $500 and $800. The trading range continued for five months, July through December 2016.

Many traders in the crypto community began to doubt whether the 2016 halving would generate a substantial rally similar to the 2012 halving. Finally, on 21 December 2016, BTC generated a bullish breakout, when the price penetrated $800. The halving rally was underway! 

Bitcoin exploded to the upside throughout the next 12 months. The final top was obtained on 18 December 2017 @ $19,862. In percentage terms, BTC enjoyed a rally of 2,847%. Please review the following table. 

Bitcoin Halving

2012 – 2016 

Halving Date         Bitcoin Price          Price Peak             Peak Date  % Increase

 

28 Nov 2012          11                           1,135                      29 Nov 2013  10,218%

 

16 Jul 2016            674                         19,862                   18 Dec 2017  2,847%

 

Source  Forbes Magazine

Will the May 2020 Bitcoin Halving Unleash a Bull Market? 

Of course, it’s impossible to predict the future direction of any speculative asset. However, based on previous Bitcoin halving occurrences, it’s fairly safe to assume that BTC will generate some type of rally following the May 2020 halving. Let’s attempt to calculate an educated guess regarding the size of the rally.

Unfortunately, we only have two previous Bitcoin halving episodes. Therefore, our data sample is very small. Let’s assume that BTC is trading near its current price of $7,400 in May 2020. Given the fact that BTC is trading at a substantially higher price compared to the 2012 halving and 2016 halving, it’s highly unlikely that Bitcoin will enjoy such a dramatic percentage price increase for the May 2020 halving.

In fact, you can see that there was a dramatic reduction in percentage gains in 2016 versus 2012. Bitcoin’s gain from the 2016 halving was 72% less than the gain from the 2012 halving.

 In an attempt to calculate a price forecast for the upcoming May 2020 halving, let’s assume that the Bitcoin halving rally will be 72% less than the 2016 halving rally. If we use these numbers in our calculation, we can conclude that BTC will enjoy a substantial gain of 797%. 

Based on a price of $7,400, Bitcoin will reach a peak of $58,978 within 12 to 18 months from May 2020. Therefore, the price peak will occur between May 2021 and November 2021.

Of course, nobody should take these forecasts too seriously. Several things can change within the crypto universe before May 2020. Additionally, there is absolutely no guarantee that Bitcoin will rally following the May 2020 halving. There is no rule which says that BTC must rally following each halving. 

However, given the fact that the BTC mining reward will be cut in half, it’s probably safe to assume that there will be at least a modest rally. Without question, it will be very exciting to watch the price of Bitcoin as we approach the May 2020 halving.

JOIN NOW

Full Disclosure: I own BTC on the spot market, BTC futures and BTC exchange-traded notes.  

 

 

Latest News

A Look at the Best Crypto Trading Strategies 29

A Look at the Best Crypto Trading Strategies

Digitex Futures
Trading
• Dave Reiter
February 11, 2020

In the world of trading and investing, there are two different methods for speculating across all asset classes.

Speculators are divided into one of the following categories: fundamental analysis or technical analysis.

Let’s examine each category and consider how they can be used to develop crypto trading strategies that work.

Fundamental Analysis vs. Technical Analysis

Fundamental analysis is most widely used among stock market traders, particularly those who invest in individual stocks. This particular method focuses on the earnings per share (EPS), price-to-earnings (P/E) ratio, dividend yield, and debt-to-equity ratio.

The main objective of fundamental analysis is to determine the intrinsic value of the individual stock. If the price of the stock is trading below its intrinsic value, an investor may want to buy the stock.

Investors use fundamental analysis with other asset classes such as bonds, commodities, and alternative investments. Regardless of the asset class, the objective is always the same — to determine the intrinsic value of the underlying asset.

If the asset is trading below its intrinsic value, the investor would be inclined to buy the security based on the fact that it’s undervalued. This can be a foundation of day trading futures strategies.

Technical analysis uses a completely different method. It’s a trading approach designed to evaluate investment flows and trading opportunities by analyzing statistical trends.

These statistical trends are gathered from various trading activities, most notably price movement and volume.

Technical analysis makes no effort to determine intrinsic value. Instead, it focuses on patterns derived from price movements and charting tools. These tools are used to appraise the strength or weakness of the underlying security or asset class and determine the day trading strategies for cryptocurrency or other assets.

Although technical analysis can be used with any asset class, it is most widely used among currency and commodity traders. Why?

Because historical research suggests that currencies and commodities generate much better performance results when traders use trend-following tools commonly found in technical analysis to develop their day trading futures strategies.

Do you want to try your hand at trading cryptocurrencies? Check out Digitex, a next-generation crypto trading platform where you can trade Bitcoin derivatives without paying any fees. With a zero-fee trading experience, you can limit your losses and maximize your gains while enjoying the benefits of a robust, beginner-friendly exchange service.

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Cryptocurrencies Work Best With Technical Analysis

Although cryptocurrencies have only been in existence for 10 years, technical analysis has proven to generate good crypto trading strategies and a better trading experience versus fundamental analysis.

Given the dramatic price fluctuations within the crypto universe, it’s virtually impossible to accurately determine the intrinsic value of any cryptocurrency, including Bitcoin. Therefore, it’s impractical to apply fundamental analysis if the intrinsic value is unavailable. As a result, the best futures trading strategies for crypto incorporate technical indicators.

Cryptocurrencies behave in a similar manner to commodities and foreign currencies (forex). Therefore, using technical indicators is the best course of action.

While there are hundreds of different technical indicators, it can be rather difficult to select the best ones when developing your day trading cryptocurrency strategy. Some simply work better than others.

Let’s review a few of the indicators that have yielded decent results for trading cryptocurrencies. We’ll use Bitcoin in our examples, but keep in mind that the best crypto trading strategy advice can usually be used for any coin.

Pay Attention to Volume

Volume can provide several clues to the underlying strength or weakness of the market. It can give early warning signs concerning a possible change in trend.

That said, many traders don’t pay attention to volume when developing their crypto trading strategies. However, this is a mistake as the indicator provides a “snapshot” picture of how many traders are actually establishing positions at various price levels.

The best way to use this indicator to develop a day trading cryptocurrency strategy is to compare and contrast the daily volume on a big up day or a big down day. If a bullish breakout is not confirmed by record volume, it’s probably a false breakout.

Also, if a bearish breakout is not validated by record volume, the most likely outcome is a false breakout in this case as well.

Let’s take a look at a perfect example of a false breakout that occurred in March 2021.

A Look at the Best Crypto Trading Strategies 30

As you can see in the chart above, a strong resistance level formed at $51,354 on February 24 from previous support. On March 2 at 20:00, BTC entered into a short bull run, in which it surged from $47,450 to $51,681 by March 3.

However, the volume was weak (3,240 BTC divided between four candlesticks). For comparison, users traded 10,748 coins while Bitcoin gained $3,615 between February 16 and 17.

As a result, this turned out to be a false breakout, with the BTC price rolling over to the downside, eliminating all the gains from the cryptocurrency’s bull run in the next few days.

However, those with great crypto trading strategies who followed the volume indicator on March 2 and 3 were able to cut their losses very quickly.

A Look at the Best Crypto Trading Strategies 31

The volume indicator produced another signal on February 22. A sell signal occurred at $54,237 on the heavy daily volume of 17,000 BTC (users traded 3,563 BTC on the previous day).

Traders who identified the crypto trading signal and shorted BTC at $54,237 enjoyed a very profitable trade, in which the digital asset fell down to $45,309 until its price started to increase again. The volume indicator worked incredibly well on this particular trade.

A Look at the Best Crypto Trading Strategies 32

A third signal occurred on March 13. The volume indicator initiated a sell signal at $61,153 as Bitcoin’s strong surge that day was not matched by record volume (only 6,188 BTC). Therefore, this trade resulted in a false breakout, which moved the cryptocurrency’s price down to $51,344 by March 25.

As you can see, volume is a very useful tool in the world of technical analysis. For that reason, you should always pay attention to volume when developing Bitcoin trading strategies as it has the potential to generate very profitable trades.

More importantly, it can identify false breakouts, which will allow you to cut your losses very quickly. For that reason, you should never ignore the volume of the asset you are planning to trade!

Basing Your Bitcoin Trading Strategies on Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a momentum oscillator that fluctuates between 0 and 100, measuring the speed and change of price movements.

RSI is a fairly popular indicator that can be found on many financial websites and also in day trading strategies for cryptocurrency.

Typically, traders use RSI to determine if a market is overbought or oversold.

The general belief is that a market becomes overbought when RSI exceeds 70. Conversely, a market becomes oversold when RSI drops below 30.

That said, this particular strategy doesn’t work very well in the real world as markets can remain overbought or oversold for extended periods of time. As a result, RSI tends to generate many false signals.

Based on historical research, a more appropriate way to apply RSI is to use it as a confirmation indicator. For example, if Bitcoin is making a new high, RSI should also be making a new high in order to confirm the strength of Bitcoin’s breakout into new territory.

If Bitcoin is making a new low, RSI should also be making a new low to confirm the strength of the cryptocurrency’s breakout into new territory.

A Look at the Best Crypto Trading Strategies 33

The chart above displays a bullish breakout on February 8, 2021 at $46,453. Since the RIS generated a new high along with the BTC price, it confirmed that the breakout is valid, which resulted in a move upward to $57,402 by February 21.

A Look at the Best Crypto Trading Strategies 34

The same outcome occurred on January 6 at $36,843. After testing the resistance line a few times, Bitcoin generated a breakout.

And, like in the previous case, the RSI confirmed the breakout as it jumped to record highs. As a result, traders who placed an order at $36,843 could profit $4,460 as BTC surged to $41,303 before entering into a correction.

The RSI indicator works remarkably well at confirming bullish and bearish breakouts. Traders who have the discipline to follow this indicator will save money by ignoring the trades that are not validated by a new RSI breakout.

Don’t Ignore Money Flow

The Money Flow Index (MFI) is a momentum indicator that measures the inflow and outflow of money into a security over a specific period of time. It uses price and volume to calculate trading pressure.

Arguably, MFI is the surest way to determine the amount of money entering and leaving a particular security or market. And if you’re looking to develop the best crypto trading strategy, you can’t ignore MFI.

Similar to the RSI, the index fluctuates between 0 and 100. In terms of Bitcoin, the best way to apply MFI for great crypto trading strategies is to use it as a validation tool.

For example, if Bitcoin is making a new high, MFI should also be making a new high in order to confirm the strength of Bitcoin’s breakout into new territory.

On the other hand, if Bitcoin is making a new low, MFI should also be making a new low to confirm the strength of BTC’s breakout.

A Look at the Best Crypto Trading Strategies 35

As you can see on the chart above, the MFI invalidated the bullish breakout on January 29, 2021 at 8:00. While Bitcoin surged by a whopping $5,000 that day, the MFI moved just above the levels it was standing eight hours ago.

A Look at the Best Crypto Trading Strategies 36

On the other hand, the MFI did a great job at validating the bullish breakout on March 8. As soon as the BTC price broke through the resistance level, the MFI jumped 10 points while the cryptocurrency’s value surged from $51,000 to $61,218 between March 8 and 13.

True Range Breakout (TRABOS)

The true range breakout indicator (TRABOS) is designed to capture short-term price fluctuations across all asset classes. It generates several buy/sell signals in comparison to most other indicators.

For those who enjoy active crypto trading strategies, TRABOS will be very appealing to your aggressive style of trading. Furthermore, it can also be applied to day trading futures strategies; trading them daily also requires a certain amount of aggression.

The most attractive aspect of TRABOS is based on the fact that it rarely misses a big move. Why? Because trading signals are calculated on a daily basis. Therefore, the indicator is constantly searching for profitable trading opportunities. See below for more information.

Note: A sell signal was generated at $54,663 on February 22, 2021.

The trading rules for TRABOS are rather simple. You can find them below:

1.Calculate the true range (daily high minus daily low).

  1. Buy signal is the closing price plus the true range.
  2. Sell signal is the closing price minus the true range.
  3. If long, the profit target is the daily high on the day of entry.
  4. If long, the protective stop is the low on the day of entry.
  5. If short, the profit target is the daily low on the day of entry.
  6. If short, the protective stop is the high on the day of entry.

A Look at the Best Crypto Trading Strategies 37

Based on the chart above, the TRABOS didn’t generate a signal on February 21.

However, traders could identify a sell signal on February 22 at $54,663. While the BTC price closed at $57,479 on the previous day, the true range was 2,816. For that reason, a bearish signal could be observed on the next day when the cryptocurrency’s value decreased below $54,663.

Putting a protective stop at $57,572, our profit target was the low on the day of entry, which is $47,426.

This turned out to be a very profitable trade because BTC experienced a substantial decline that day and the day after. As a result, we reached our profit target at $47,426 on February 23.

After the trade has been completed, simply calculate a new buy/sell signal for the next day. You can automatically calculate daily TRABOS by using the Average True Range (ATR) indicator and setting its length to 1.

TRABOS creates 2 to 3 trades per week. The key to success is to consistently take every trade for an extended period of time.

Since TRABOS generates a large number of buy/sell signals, it is an excellent indicator for traders on the Digitex Futures platform. As Digitex is 100% commission-free, it doesn’t hurt the profitability of traders by imposing fees on their positions (a 0.10% cost would take away 10% from margin traders using a 100x leverage).

For that reason, trading on Digitex will dramatically reduce the cost of trading for aggressive crypto trading strategies that incorporate indicators like TRABOS.

Crypto Trading Strategies – Wrapping It Up

While they are definitely useful, the four indicators listed in this article are certainly not perfect. However, when taken as a group, they provide an excellent approach to trading cryptocurrencies.

No matter whether cryptocurrencies are bullish or bearish, it’s certainly possible to trade crypto successfully amid any market conditions.

However, it requires patience, discipline, and a handful of reliable indicators. While it’s easy to pick the right indicators, the hard part is being patient, disciplined, and dedicated when leveraging your crypto trading strategies.

That said, developing the best futures trading strategies will take more than just knowledge of these indicators, but they’re a good place to start.

Personal Observations

I’ve been trading commodities for three decades. In 2016, I began trading cryptocurrencies.

Throughout my trading career, I’ve used technical analysis 100% of the time and have found it to be integral to developing the best crypto trading strategy.

Based on my trading results, I’m convinced that certain price patterns are repetitive in nature. I believe in the notion that past trading activity and price movements are valuable indicators of future price direction.

I’m also convinced that technical analysis will generate superior results, particularly if the technical indicators are trend-following in nature.

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Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice, nor is it a replacement for advice from a certified financial planner.

February 11, 2020
Digitex Futures
Trading

A Look at the Best Crypto Trading Strategies

Dave Reiter
A Look at the Best Crypto Trading Strategies 38

In the world of trading and investing, there are two different methods for speculating across all asset classes.

Speculators are divided into one of the following categories: fundamental analysis or technical analysis.

Let’s examine each category and consider how they can be used to develop crypto trading strategies that work.

Fundamental Analysis vs. Technical Analysis

Fundamental analysis is most widely used among stock market traders, particularly those who invest in individual stocks. This particular method focuses on the earnings per share (EPS), price-to-earnings (P/E) ratio, dividend yield, and debt-to-equity ratio.

The main objective of fundamental analysis is to determine the intrinsic value of the individual stock. If the price of the stock is trading below its intrinsic value, an investor may want to buy the stock.

Investors use fundamental analysis with other asset classes such as bonds, commodities, and alternative investments. Regardless of the asset class, the objective is always the same — to determine the intrinsic value of the underlying asset.

If the asset is trading below its intrinsic value, the investor would be inclined to buy the security based on the fact that it’s undervalued. This can be a foundation of day trading futures strategies.

Technical analysis uses a completely different method. It’s a trading approach designed to evaluate investment flows and trading opportunities by analyzing statistical trends.

These statistical trends are gathered from various trading activities, most notably price movement and volume.

Technical analysis makes no effort to determine intrinsic value. Instead, it focuses on patterns derived from price movements and charting tools. These tools are used to appraise the strength or weakness of the underlying security or asset class and determine the day trading strategies for cryptocurrency or other assets.

Although technical analysis can be used with any asset class, it is most widely used among currency and commodity traders. Why?

Because historical research suggests that currencies and commodities generate much better performance results when traders use trend-following tools commonly found in technical analysis to develop their day trading futures strategies.

Do you want to try your hand at trading cryptocurrencies? Check out Digitex, a next-generation crypto trading platform where you can trade Bitcoin derivatives without paying any fees. With a zero-fee trading experience, you can limit your losses and maximize your gains while enjoying the benefits of a robust, beginner-friendly exchange service.

Register An Account At Digitex Now!

Cryptocurrencies Work Best With Technical Analysis

Although cryptocurrencies have only been in existence for 10 years, technical analysis has proven to generate good crypto trading strategies and a better trading experience versus fundamental analysis.

Given the dramatic price fluctuations within the crypto universe, it’s virtually impossible to accurately determine the intrinsic value of any cryptocurrency, including Bitcoin. Therefore, it’s impractical to apply fundamental analysis if the intrinsic value is unavailable. As a result, the best futures trading strategies for crypto incorporate technical indicators.

Cryptocurrencies behave in a similar manner to commodities and foreign currencies (forex). Therefore, using technical indicators is the best course of action.

While there are hundreds of different technical indicators, it can be rather difficult to select the best ones when developing your day trading cryptocurrency strategy. Some simply work better than others.

Let’s review a few of the indicators that have yielded decent results for trading cryptocurrencies. We’ll use Bitcoin in our examples, but keep in mind that the best crypto trading strategy advice can usually be used for any coin.

Pay Attention to Volume

Volume can provide several clues to the underlying strength or weakness of the market. It can give early warning signs concerning a possible change in trend.

That said, many traders don’t pay attention to volume when developing their crypto trading strategies. However, this is a mistake as the indicator provides a “snapshot” picture of how many traders are actually establishing positions at various price levels.

The best way to use this indicator to develop a day trading cryptocurrency strategy is to compare and contrast the daily volume on a big up day or a big down day. If a bullish breakout is not confirmed by record volume, it’s probably a false breakout.

Also, if a bearish breakout is not validated by record volume, the most likely outcome is a false breakout in this case as well.

Let’s take a look at a perfect example of a false breakout that occurred in March 2021.

A Look at the Best Crypto Trading Strategies 39

As you can see in the chart above, a strong resistance level formed at $51,354 on February 24 from previous support. On March 2 at 20:00, BTC entered into a short bull run, in which it surged from $47,450 to $51,681 by March 3.

However, the volume was weak (3,240 BTC divided between four candlesticks). For comparison, users traded 10,748 coins while Bitcoin gained $3,615 between February 16 and 17.

As a result, this turned out to be a false breakout, with the BTC price rolling over to the downside, eliminating all the gains from the cryptocurrency’s bull run in the next few days.

However, those with great crypto trading strategies who followed the volume indicator on March 2 and 3 were able to cut their losses very quickly.

A Look at the Best Crypto Trading Strategies 40

The volume indicator produced another signal on February 22. A sell signal occurred at $54,237 on the heavy daily volume of 17,000 BTC (users traded 3,563 BTC on the previous day).

Traders who identified the crypto trading signal and shorted BTC at $54,237 enjoyed a very profitable trade, in which the digital asset fell down to $45,309 until its price started to increase again. The volume indicator worked incredibly well on this particular trade.

A Look at the Best Crypto Trading Strategies 41

A third signal occurred on March 13. The volume indicator initiated a sell signal at $61,153 as Bitcoin’s strong surge that day was not matched by record volume (only 6,188 BTC). Therefore, this trade resulted in a false breakout, which moved the cryptocurrency’s price down to $51,344 by March 25.

As you can see, volume is a very useful tool in the world of technical analysis. For that reason, you should always pay attention to volume when developing Bitcoin trading strategies as it has the potential to generate very profitable trades.

More importantly, it can identify false breakouts, which will allow you to cut your losses very quickly. For that reason, you should never ignore the volume of the asset you are planning to trade!

Basing Your Bitcoin Trading Strategies on Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a momentum oscillator that fluctuates between 0 and 100, measuring the speed and change of price movements.

RSI is a fairly popular indicator that can be found on many financial websites and also in day trading strategies for cryptocurrency.

Typically, traders use RSI to determine if a market is overbought or oversold.

The general belief is that a market becomes overbought when RSI exceeds 70. Conversely, a market becomes oversold when RSI drops below 30.

That said, this particular strategy doesn’t work very well in the real world as markets can remain overbought or oversold for extended periods of time. As a result, RSI tends to generate many false signals.

Based on historical research, a more appropriate way to apply RSI is to use it as a confirmation indicator. For example, if Bitcoin is making a new high, RSI should also be making a new high in order to confirm the strength of Bitcoin’s breakout into new territory.

If Bitcoin is making a new low, RSI should also be making a new low to confirm the strength of the cryptocurrency’s breakout into new territory.

A Look at the Best Crypto Trading Strategies 42

The chart above displays a bullish breakout on February 8, 2021 at $46,453. Since the RIS generated a new high along with the BTC price, it confirmed that the breakout is valid, which resulted in a move upward to $57,402 by February 21.

A Look at the Best Crypto Trading Strategies 43

The same outcome occurred on January 6 at $36,843. After testing the resistance line a few times, Bitcoin generated a breakout.

And, like in the previous case, the RSI confirmed the breakout as it jumped to record highs. As a result, traders who placed an order at $36,843 could profit $4,460 as BTC surged to $41,303 before entering into a correction.

The RSI indicator works remarkably well at confirming bullish and bearish breakouts. Traders who have the discipline to follow this indicator will save money by ignoring the trades that are not validated by a new RSI breakout.

Don’t Ignore Money Flow

The Money Flow Index (MFI) is a momentum indicator that measures the inflow and outflow of money into a security over a specific period of time. It uses price and volume to calculate trading pressure.

Arguably, MFI is the surest way to determine the amount of money entering and leaving a particular security or market. And if you’re looking to develop the best crypto trading strategy, you can’t ignore MFI.

Similar to the RSI, the index fluctuates between 0 and 100. In terms of Bitcoin, the best way to apply MFI for great crypto trading strategies is to use it as a validation tool.

For example, if Bitcoin is making a new high, MFI should also be making a new high in order to confirm the strength of Bitcoin’s breakout into new territory.

On the other hand, if Bitcoin is making a new low, MFI should also be making a new low to confirm the strength of BTC’s breakout.

A Look at the Best Crypto Trading Strategies 44

As you can see on the chart above, the MFI invalidated the bullish breakout on January 29, 2021 at 8:00. While Bitcoin surged by a whopping $5,000 that day, the MFI moved just above the levels it was standing eight hours ago.

A Look at the Best Crypto Trading Strategies 45

On the other hand, the MFI did a great job at validating the bullish breakout on March 8. As soon as the BTC price broke through the resistance level, the MFI jumped 10 points while the cryptocurrency’s value surged from $51,000 to $61,218 between March 8 and 13.

True Range Breakout (TRABOS)

The true range breakout indicator (TRABOS) is designed to capture short-term price fluctuations across all asset classes. It generates several buy/sell signals in comparison to most other indicators.

For those who enjoy active crypto trading strategies, TRABOS will be very appealing to your aggressive style of trading. Furthermore, it can also be applied to day trading futures strategies; trading them daily also requires a certain amount of aggression.

The most attractive aspect of TRABOS is based on the fact that it rarely misses a big move. Why? Because trading signals are calculated on a daily basis. Therefore, the indicator is constantly searching for profitable trading opportunities. See below for more information.

Note: A sell signal was generated at $54,663 on February 22, 2021.

The trading rules for TRABOS are rather simple. You can find them below:

1.Calculate the true range (daily high minus daily low).

  1. Buy signal is the closing price plus the true range.
  2. Sell signal is the closing price minus the true range.
  3. If long, the profit target is the daily high on the day of entry.
  4. If long, the protective stop is the low on the day of entry.
  5. If short, the profit target is the daily low on the day of entry.
  6. If short, the protective stop is the high on the day of entry.

A Look at the Best Crypto Trading Strategies 46

Based on the chart above, the TRABOS didn’t generate a signal on February 21.

However, traders could identify a sell signal on February 22 at $54,663. While the BTC price closed at $57,479 on the previous day, the true range was 2,816. For that reason, a bearish signal could be observed on the next day when the cryptocurrency’s value decreased below $54,663.

Putting a protective stop at $57,572, our profit target was the low on the day of entry, which is $47,426.

This turned out to be a very profitable trade because BTC experienced a substantial decline that day and the day after. As a result, we reached our profit target at $47,426 on February 23.

After the trade has been completed, simply calculate a new buy/sell signal for the next day. You can automatically calculate daily TRABOS by using the Average True Range (ATR) indicator and setting its length to 1.

TRABOS creates 2 to 3 trades per week. The key to success is to consistently take every trade for an extended period of time.

Since TRABOS generates a large number of buy/sell signals, it is an excellent indicator for traders on the Digitex Futures platform. As Digitex is 100% commission-free, it doesn’t hurt the profitability of traders by imposing fees on their positions (a 0.10% cost would take away 10% from margin traders using a 100x leverage).

For that reason, trading on Digitex will dramatically reduce the cost of trading for aggressive crypto trading strategies that incorporate indicators like TRABOS.

Crypto Trading Strategies – Wrapping It Up

While they are definitely useful, the four indicators listed in this article are certainly not perfect. However, when taken as a group, they provide an excellent approach to trading cryptocurrencies.

No matter whether cryptocurrencies are bullish or bearish, it’s certainly possible to trade crypto successfully amid any market conditions.

However, it requires patience, discipline, and a handful of reliable indicators. While it’s easy to pick the right indicators, the hard part is being patient, disciplined, and dedicated when leveraging your crypto trading strategies.

That said, developing the best futures trading strategies will take more than just knowledge of these indicators, but they’re a good place to start.

Personal Observations

I’ve been trading commodities for three decades. In 2016, I began trading cryptocurrencies.

Throughout my trading career, I’ve used technical analysis 100% of the time and have found it to be integral to developing the best crypto trading strategy.

Based on my trading results, I’m convinced that certain price patterns are repetitive in nature. I believe in the notion that past trading activity and price movements are valuable indicators of future price direction.

I’m also convinced that technical analysis will generate superior results, particularly if the technical indicators are trend-following in nature.

Leverage Your Crypto Trading Strategies on Digitex

High fees can easily turn the profits of traders into losses.

To avoid hurting your profitability, the revolutionary Bitcoin derivatives trading platform Digitex completely eliminated fees on its platform. As a result, you get more winning trades, more often while leveraging your crypto trading strategies on the Digitex futures exchange.

In addition to keeping 100% of your revenue while utilizing a robust crypto trading platform, Digitex also features multiple rewards programs.

By yield farming the exchange’s native DGTX token on Uniswap, you can benefit from a generous 10.90% APY with the option to multiply your gains by providing liquidity for longer periods.

On top of that, Digitex also rewards users for simply trading cryptocurrency via its liquidity mining program.

In exchange for providing liquidity to the platform with unfilled orders, Digitex traders can earn up to 140 DGTX each minute. The rewards are distributed proportionally between those whose unmatched orders were the closest to the spot price at the time the system randomly takes a snapshot of the order book.

To reap all these benefits, be sure to create an account at the Bitcoin derivatives exchange Digitex.

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Purchase DGTX Now!

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice, nor is it a replacement for advice from a certified financial planner.

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