Bitcoin (CCC:BTC-USD) is on the cusp of a major rebound. Once it rises above $40,000 the cryptocurrency market will likely start to stage a turnaround. As a result, BTC-USD could gain momentum on the upside, as it has done several times in the past.
As of Saturday, Jan. 29, Bitcoin was trading at $38,435 per BTC-USD token. Even if it pushes over $40,000 by the time this article comes out, that level should be seen as a red level mark.
For example, the last time that Bitcoin fell below $40,000, was during the big sell-off last year in late May to July — about May 21 to July 27 or so. In other words, the crypto did not stay below this level very long. It started to form a base and then staged a turnaround within 60 days.
So far this year, Bitcoin has been below $40,000 for only about 10 days since Jan. 19. It could stay below this level for another 30 or 40 days or briefly go over $40,000. But I suspect that after 60 days below this level it could begin another turnaround just as it did last year.
What Analysts Say About Bitcoin
CoinTelegraph magazine recently quoted several analysts that agree with this red line level at $40,000. For example, on Jan. 28, Cointelegraph quoted a popular trader who said that $40,000 was needed for Bitcoin price to flip “full bull.”
In addition, Bitcoin has already hit a low of $35,000 earlier this month on Jan. 21. The magazine suggested that this bottom had already eliminated a number of short-sellers at that low point.
In other words, with these bearish traders out of the way (i.e., having shorted or sold off Bitcoin at these low prices), it leaves plenty of upside for BTC-USD.
Moreover, the magazine also quoted an analyst site called Decentrader as saying there could now be “at least a near-term relief bounce” or a “reset” in Bitcoin’s price. This is after the crypto price temporarily fell below $33,000 mid-week.
El Salvador Doubles Down
Also, in other news bullish for Bitcoin, El Salvador’s President responded to the IMF request that the company should stop using Bitcoin as legal tender.
I wrote about this late last week and the currency’s growing popularity throughout the world. In fact, some are now saying that over 1 billion people could own Bitcoin by the end of 2022.
The President of El Salvador responded to the IMF and the World Bank by saying that the country had just acquired more Bitcoin.
He reported that the country had bought 400 Bitcoin for only 15 million dollars. That implies that the government paid just $37,500 per BTC-USD token.
As of Jan. 29, Bitcoin was trading at $38,435 per BTC-USD. That means the El Salvador central bank already has a slight profit in its most recent purchase. This is a good example of an institutional investor taking advantage of Bitcoin’s cheap price right now.
Alternative Views on Bitcoin
Not everyone is so well convinced. For example, Barron’s magazine put out a thoughtful piece on Jan. 20, quoting analysts essentially who say a second crypto “winter” could still be coming.
This is because the expected upcoming monetary tightening by the Federal Reserve could affect Bitcoin and other cryptos just as harshly as stocks. This is what happened during 2018.
The last such “winter” in 2018 saw Bitcoin and other cryptos fall more than 75% from previous peaks. They then took about three years to return to previous highs from 2017.
In other words, all financial assets will get hit when the Fed moves against them, in their attempt to reduce inflation.
In fact, according to UBS (NYSE:UBS), per Barron’s magazine, the idea that Bitcoin could be a store of value in an inflationary climate is also suspect. As the UBS analyst sees it, Bitcoin’s rise is simply a result of excess liquidity and loose monetary policy. So, if inflation continues to spike over 7%, as it did in December, it may be difficult for Bitcoin to rise again.
What To Do With Bitcoin
Therefore, investors now have two views to consider. Either Bitcoin is not correlated to other prices, and it could rebound if the price rises over $40,000. Or else it is correlated and the upside potential for Bitcoin is limited, at least as long as the Fed decides to raise interest rates.
Investors will have to make up their minds on this issue. One thing is for sure now, though, and that is by buying Bitcoin, you can average down and lower your average cost in the security. That seems the best route to take right now, and to be patient, just in case BTC-USD rebounds after crossing the $40K red line.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
