Hopes For A Parabolic Bitcoin Rally Hinge On This Critical Support Level

Hopes For A Parabolic Bitcoin Rally Hinge On This Critical Support Level

A steady stream of upbeat news in the sector – from the launch of three new bitcoin ETFs to the unveiling of the first 'bitcoin city' in El Salvador – has convinced many that the world’s largest cryptocurrency is on the verge of a parabolic price surge north of $100,000.

Since hitting an all-time high of $69,000 on November 10, however, bitcoin has surprised many by shedding nearly 20% of its value.

The digital asset was valued at $57,175 on the Bitstamp exchange at 15:50 GMT Tuesday.

Experts note that steep pullbacks are nothing unusual for bitcoin, citing this year’s retracements of 25% in September and 50% in May. The cryptocurrency is still up 98% year-to-date and its reputation for volatility is arguably a good thing, as it removes leverage from the market by liquidating high-risk traders.

Even so, the recent blow-off-top has surprised those who confidently predicted that bitcoin will attain a six-digit price by the end of 2021.

The cryptocurrency's previous two market cycle tops occurred at four-year intervals in the run-up to Christmas, with price reaching $1,163 on November 30, 2013 and $19,666 on December 17, 2017.

Both peaks were followed by drawn-out 74-77% downturns – popularly dubbed 'crypto winters' – so the stakes couldn’t be higher for anyone looking to cash out in the final stage of the current bull-run. (It’s worth noting, though, that some traders think the four-year market cycle is now giving way to an era of sustained growth: the “this time it’s different” perspective).

No-one knows for sure what will happen. But by looking at recent price action we can at least identify an area of technical support which will likely need to hold if bitcoin is to achieve its long-awaited parabolic pump.

The above weekly chart highlights the significance of $50,000 for two simple reasons.

First, the up-trend that began in late July has established the 20-week simple moving average as a pullback zone around which price could be expected to make a new higher low before resuming its upward trajectory. That first happened in September, when price dipped just below the weekly 20SMA before pumping from around $40,000 to this month’s all time high.

The expectation – should the up-trend remain intact – would be for a similar dip to the 20SMA to trigger bitcoin’s next leg up. It currently sits at about $50,800.

Second, when you join together the market lows of March 2020 (around $4,000), September 2020 (around $10,000), June 2021 (around $29,000) and September 2021 (around $40,000), you cannot help but draw a curved line with exponential growth that attains verticality around April 2022. Or, put another way, that runs its course during the first quarter of next year.

Note that the weekly 20SMA has perfectly mirrored this curve since September. It also currently sits at about $50,800 .

Few assets can be as confounding as bitcoin, so any technical analysis must be taken with a dose of skepticism. However, even the most bullish of traders will admit that a dip below $50,000 would not bode well for bitcoin’s chances of a parabolic end to this market cycle.

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