Things may be calmer than expected as 2021 ends, but the chances for “face-melting” green candles are still there, say analysts.
Bitcoin (BTC) starts a new week near $51,000 as the end of 2021 draws near and traders down tools for the holidays.
After a $50,000 Christmas, Bitcoin continues to take stock of a year in which it has gone from $29,000 to $69,000 and halfway back again.
Expectations were certainly not for such eerie calm to round out December — a blow-off top, the majority argued, should have already taken the market to $100,000 and beyond.
Instead, after dipping to $41,800, a slow grind through familiar territory is how Bitcoin appears to be finishing off what has been a post-halving year full of surprises.
With mixed emotions characterizing the end of Q4, Cointelegraph takes a look at what could shape BTC price action for the remaining few days of 2021.
Bitcoin on shorter timeframes: “Gently does it”
Despite concerns that thin liquidity could spark increased spot price volatility during the holiday season, so far, the opposite is true — Bitcoin is quiet, possibly too quiet.
The weekend saw little by way of unusual price moves, with a brief dip below $50,000 subsequently returning to the upside.
BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView
For popular Twitter trader Pentoshi, this was reason enough to lie in wait for the more important $53,000 zone to return before acting.
“Eyes still on 49.2 and 53-55k range per prev charts (contested territories),” he confirmed late on Sunday.
He noted the “clean” nature of BTC/USD on weekly timeframes, with the pair just above the midpoint in a multi-month range with $58,000 as its upper bound and $32,000 as its lower bound.
$58,000, he added in comments, could be the “most defining spot” for chartists in 2022.
Cautious in the short term, meanwhile, was filbfilb, co-founder of trading platform Decentrader, who despite flagging multiple bullish signals on Christmas Day warned that current BTC/USD levels may be something of a bull trap.
Unfortunately, PA now looks trappy at these highs, caution advised.
— filbfilb (@filbfilb) December 25, 2021
For him, the 50-day moving average, currently at $54,700, would be a bullish trigger point for the new year.
Stock-to-flow lives to fight another year
They may be facing a barrage of criticism, but the perennial stock-to-flow Bitcoin price models — and their creator, PlanB — refuse to give up.
According to tracking account S2F Multiple, BTC/USD should ideally be trading at above $97,000 this week, but reality has other ideas.
With the latest drawdown from all-time highs, Bitcoin is challenging the capabilities of a model series that has so far never been invalidated.
This has provided for contention — stock-to-flow uses two standard deviation bands around a key trajectory to monitor price, and Bitcoin currently sits between them. While in fact nowhere near invalid, the model has courted claims that its range of acceptable price action is too wide to be useful.
These were exacerbated when PlanB appeared to say that he would abandon the models should BTC/USD not trade at $100,000 by the end of 2021.
“To be clear: I have no doubt whatsoever that bitcoin S2FX is correct and #bitcoin will tap $100K-288K before Dec2021,” he wrote in part of comments in early November.
He subsequently retracted those claims, stressing that the standard deviation bands would dictate any technical invalidation. As such, stock-to-flow (S2F) and its spin-off stock-to-flow cross-asset (S2FX), both remain in play.
“Imagine thinking a model that has stayed within 1 standard deviation band for 3yrs has failed,” he countered.
“IMO we are in the exact same spot as March 2019 when I published S2F model: at the low end of the 1sd band. DYOR. Look at the chart. Your choice.”Bitcoin stock-to-flow chart as of Dec. 27. Source: Buy Bitcoin Worldwide
S2F requires an average $100,000 price tag for Bitcoin this halving cycle, while S2FX ups that to $288,000.
PlanB’s floor model, also accurate throughout Bitcoin’s history, failed to track the monthly close for the first time in November.
Beware the open interest time bomb
Bitcoin spot price action could give everyone a headache on thin holiday volumes, but a key area to watch is derivatives.
After the clearout earlier this month, open interest in Bitcoin futures has been creeping back up. This in and of itself is unremarkable, but should expanding open interest combine with a conversely declining price, the stage is set for pain, filbfilb warns.
Most of the time risk can be found in OI: price up, OI up ok, price down OI down not so bad, prices down OI flat / up, get rekt.
— filbfilb (@filbfilb) December 26, 2021
He reasoned, however, that nuances mean the relationship between price and open interest moves is not as simple, but would “save” traders’ positions in volatile periods.
Concerns have subsided, meanwhile, following the flushing out of excessive leverage across derivatives markets in the $42,000 rout.
Despite leverage since returning, funding rates are neutral at $50,000, a conspicuous change from just several weeks ago, and confidence is building that sustained price upside can now continue as a result.
On-chain indicators governing buyer and seller behavior, meanwhile, are also showing signs of a potential turnaround.
“Big thing I keep my eyes on is for when the trend for both net realized profit and loss decrease to low levels,” Twitter account On-Chain College noted Sunday, highlighting data from on-chain analytics firm Glassnode.
“Tells me that sellers may be exhausted, and we potentially could have more drastic price movement if buyers step in.”Bitcoin net realized profit/ loss annotated chart. Source: On-Chain College/ Twitter
Liquidity caution spills over to macro
Macro markets presented a now standard range of risk issues for the holiday break, these nonetheless also apt to cause greater than average moves thanks to reduced liquidity.
Chart traders beware
The last half of December is a time when chart pattern breakouts should be viewed with great suspicion.
Many false breakouts occur during thinly traded holiday periods. pic.twitter.com/jdUvk6pxye
— Peter Brandt (@PeterLBrandt) December 20, 2021
The prognosis for the coming days was thus “either the headline reel will spur ugly intraday moves on holiday-thinned liquidity, or volatility will remain so flatline, that if it were an ECG, the doctors and nurses would be yelling code blue,” Bloomberg quoted Jeffrey Halley, senior market analyst at forex broker Oanda, as saying.
Such headlines could revolve around Coronavirus or China, with Asian stocks down Monday and European indexes looking peaky at the open.
U.S. equities hit fresh all-time highs in the run-up to the Christmas break, capping a momentous year in which the S&P 500 alone saw 68 new records.
The U.S. dollar, however, is yet to recover its previous intense uptrend, with the U.S. dollar currency index (DXY) treading water into the end of the year. This could provide at least some respite for Bitcoin traders should stocks also benefit.
DXY remains near its highest since June 2020.
U.S. dollar currency index (DXY) 1-week candle chart. Source: TradingView
Bitcoin “melts faces when people least expect it”
Bitcoin traders are getting more, not less, fearful as 2021 fades.
As per the Crypto Fear & Greed Index, a popular sentiment gauge which factors in a range of variables to produce an overall impression of trader emotions, the market is far from out of the woods — even above $50,000.
As of Monday, Fear & Greed stands at 40/100, characterizing “fear,” having hit highs of 45/100 last week.
Crypto Fear & Greed Index. Source: Alternative.me
The Index has shown that sentiment has been particularly sensitive to even small price fluctuations since the rout.
The implication is therefore that jitters could spark more emotional trading reactions, and a price event could result in a snowball effect up or down.
Under normal circumstances, however, a mass capitulation event only occurs during periods of “extreme greed,” in which the Index measures 90/100 or more.
Taking a more optimistic tone, meanwhile, Blocksteam CSO Samson Mow argued that most lay market paritcaptans are too gloomy this Christmas.
Lots of bearish sentiment in response to my tweet, plus many can’t seem to understand it either (bUt iT WaS 50k a wHiLe aGo), which makes me think we’re going to have some massive green candles soon. #Bitcoin usually melts faces when people least expect it. https://t.co/UiK91ij9Qn
— Samson Mow (@Excellion) December 24, 2021
“Bitcoin usually melts faces when people least expect it,” he said during a Twitter discussion.