Bitcoin price (BTCUSD) remains in tight range as focus on the cryptocurrency returns after the Twitter’s big hackyesterday. The cryptocurrency is trading at $9,200, which is slightly above yesterday’s low of $8,987. Still, as I will explain in the technical section below, the price is gearing for a major breakout considering that it has formed a triangle pattern. In this report, let us look at the three most important reasons to invest in Bitcoin, according to analyst, Lynn Alden Schweizer.
Bitcoin is extremely scarce
Bitcoin is not a currency but a decentralised software. As you are aware by now, only 21 million Bitcoins will ever be mined and today, millions of the existing coins have already been mined.
In broad sense, this should not be a major reason to invest in Bitcoin. Furthermore, many other smaller digital coins have limited supplies. What is important is that Bitcoin has a well-known brand name and is the biggest digital currency in the world today. That means that Bitcoin can be seen as a rare commodity, unlike gold and silver that are found in plenty. Alden wrote:
“The nearly impossible part is to make one that is trusted, secure, and with sustained demand, which are all traits that Bitcoin has.”
The second reason why Bitcoin price is set to go up, according to Alden is the halving cycle. As you recall, the last halving cycle took place in May this year. This was an event where the blocks that are awarded to miners is reduced into half. The goal of this halving is to ensure that Bitcoin supply is constrained.
In the past three halvings, Bitcoin price tends to climb 12 to 18 months before the event. She wrote:
“As you can see, the previously-described pattern appears. In the year or two after a halving, the price tends to enjoy a bull run, sharply overshoots the model, and then falls below the model, and then rebounds and finds equilibrium closer to the model until the next halving.”
Finally, she believes that Bitcoin price will go up because of the macro backdrop. She expects that interest rates will remain being low for a longer time than most people anticipates. Her statement reminded me of an article I read recently about the Fed and the market being like a ponzi scheme.
The idea goes like this. The Fed lowers interest rates because of the pandemic and it fuels an asset bubble. The bubble remains and if the stocks fall if it attempts to hike interest rates. So, it has to leave rates at these low levels. She wrote:
“Even a 1% spillover into Bitcoin from the tens of trillions’ worth of zero-yielding bonds and cash assets, if it were to occur, would be far larger than Bitcoin’s entire current market capitalization.”
Bitcoin price (BTCUSD) technical outlook
On the daily chart below, we see that Bitcoin price has been under pressure. As a result, it has dropped below the 100-day EMA and is still above the 100-day EMA. Most importantly, BTCUSD has been forming a triangle pattern that is shown in green. Interestingly, this pattern is approaching its tip, which is usually a sign that a break out is near. Since Bitcoin price was originally going higher, it will likely break out to the upside.
On the flip side a move below the 23.6% Fibonacci retracement level at $8870 will mean that bears have prevailed.