The move in bitcoin has been stunning. While the cryptocurrency was trading well in the summer and into the fourth quarter, the explosiveness over the past few weeks and months is really impressive.
Bitcoin prices have more than doubled since Dec. 16 and are up just over 300% from the Q4 low. From the March low, bitcoin is on the verge of logging a 1,000% return.
The gains we have seen this year are simply beyond what we experience during “normal” market conditions. EVs, cryptocurrencies, deep value plays like Penn National Gaming (NASDAQ:PENN), high-growth tech stocks and the IPO and SPAC space have seen pockets of euphoria.
Simple Observations
I am not sure how these euphoric pockets will end, but I am sure that they will cool off eventually. Bitcoin is a little bit different, though.
I will be the first to admit, I’m not the biggest crypto bull out there. I’m not going to write a white paper on the blockchain or download crypto wallets to buy stuff online or at the store.
Who knows, maybe that’s where the future is headed. I’m not an economist or a futurist. However, I am an investor and a trader with an open mind. If the trends, technicals and fundamentals are bullish, then I am bullish. If they’re bearish, then I’m bearish.
With bitcoin, it’s pretty clear that bulls are — and have been — driving the narrative. When we find ourselves in a runaway train scenario, there’s no telling just how far the rally will go.
Breaking Down Bitcoin
What do I like about the current fundamentals? I like that access to bitcoin has become so easy. I also like who is getting involved here.
Granted, investors can’t buy bitcoin right alongside stocks in most well-known brokerages, but it seems like a foregone conclusion that that will eventually be the case. In any regard, platforms like Coinbase and Robinhood have made it easy and offer a reputable solution.
PayPal (NASDAQ:PYPL) recently launched its crypto platform, joining Square’s (NYSE:SQ) Cash App in allowing the buying and selling of certain cryptocurrencies. Most of these options didn’t exist during bitcoin last big run in late 2017.
The ease of access is going to drive demand for an asset with limited supply. For me, it’s more about the supply-demand dynamic than any of the other underlying drivers (like the blockchain, reserve currency, etc.).
Further, look at what’s happening as more names get involved. Legendary trader Paul Tudor Jones called bitcoin the fastest horse in the inflation trade in the second quarter of 2020. That proved true — buy a lot.
Then there’s companies like MicroStrategy (NASDAQ:MSTR), which plowed cash into bitcoin. After the cryptocurrency started to gain steam, the company raised even more capital and deployed it in bitcoin. As of Dec. 21, MicroStrategy had more than 70,000 bitcoins at an average price of $15,964. Now at $33,000, that “modest” investment of about $1.1 billion is more than $2.3 billion — a gain of more than $1.2 billion.
I’m not suggesting corporations should raise capital and put it into bitcoin. But imagine of some of the bigger entities flush with cash put even 0.5% to 1% of those holdings into bitcoin rather than Treasuries.
How Far Can BTC Rally?
Click to Enlarge
In the headline, I wrote that $45,000 is a possible destination for bitcoin. I still believe that, given how well this asset has been trading.
Anyone who follows InvestorPlace’s Top Stock Trades series knows how much I love the way bitcoin trades. It moves very technically, respecting key levels and measures. However, you’ll also recall that I said bitcoin was looking wobbly.
If we look at the chart above, that “wobble” can be seen in the expanding ranges.
Look at how neatly and tightly the crypto traded as it bumped up against $20,000 before breaking out. It ran to the two-times range extension near $24,000, consolidated, then ran to the 261.8% extension. Then the three-times range extension and the 361.8% extension after that.
However, we’ve seen some pullbacks in that run, particularly in 2021. For instance, it had a nearly $6,000 range on Jan. 4 and a $5,500 range on Jan. 8. From here, a dip to the three-times range extension and 10-day moving average would be healthy. Below that is the 21-day moving average and possible support near $30,000.
On the upside — with or without a pullback — look for a move above the Jan. 8 high at $42,000. That will put the four-times range and 423.6% extensions in play near $44,000 and $46,300.
Eventually, bitcoin will need to base and consolidate, which will likely coincide with a pullback. But until the chart shows when, I don’t want to get bearish (although being cautious is fine).
On the date of publication, Bret Kenwell had no (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
