Bitcoin (BTC) is likely to end 2021 well below analysts’ target projections of $100,000. Kraken CEO Jesse Powell, who had also projected a $100,000 price target for Bitcoin, still remains bullish in the long term, but he does not rule out a sharp drop in the short term.
One of the negatives that may add pressure to Bitcoin in the short term is the shift in the United States Federal Reserve’s monetary policy. On Dec. 15, the Fed announced that it would wind down its bond-buying program at a faster pace, and it also projected three interest rate hikes in 2022.
Crypto market data daily view. Source: Coin360
Sam Stovall, chief investment strategist of CFRA Research, told CNBC that historically, the S&P 500 tends to post negative returns in the 12-month period when the Fed undertakes three or more rate increases.
If history repeats, Bitcoin could also struggle to run away due to its strong correlation with the S&P 500 at various stages in 2021. It is difficult to predict with certainty whether investors will continue to buy Bitcoin to hedge their portfolio against rising inflation if a risk-off sentiment will result in profit-booking.
With this uncertainty, let’s turn to the charts and conduct a long-term Bitcoin analysis to determine the critical levels to watch out for.
Bitcoin’s sharp rally in 2017 pushed the relative strength index (RSI) above 96, indicating a state of euphoria among traders. Vertical rallies are rarely sustainable and are usually followed by a sharp correction or a period of consolidation. That is what happened after the bull move ended in 2017.
BTC/USD monthly chart. Source: TradingView
The BTC/USD pair remained stuck below the December 2017 highs until the breakout above $20,000 in December 2020. This shows a large base-building period of about three years.
The pair’s sharp rally in 2021 propelled the RSI above 91 in March before profit-booking set in. However, unlike 2017, bulls aggressively defended the 20-month exponential moving average ($37,281).
This suggests that sentiment remained positive and traders were using the dips to accumulate. The subsequent rally drove the pair…