Bitcoin’s reaching $100,000 per coin by the end of 2021 was a no-brainer for most crypto enthusiasts. However, Bitcoin has always managed to surprise its investors ever since its inception and 2021 was no different.
Although Bitcoin teased investors twice with all-time new highs close to $70,000 levels in 2021, it retraced from those highs both of the times, leaving people’s $100,000 expectations in the dust.
Bitcoin closed in 2021 at around $45,000 per coin, instead of $100,000! Due to that, Bitcoin is at a crossroads now and people are curious about whether the price of Bitcoin will rise or fall in 2022. You can access the cryptocurrency pricing at cex.io.
There is a number of factors that are likely to determine Bitcoin’s direction going forward. Many of those factors are non-crypto related, but since all capital markets are correlated to each other now in today’s digital world, they can have the verdict on Bitcoin’s overall price action in 2022.
So let’s explore the factors below that could impact whether Bitcoin will grow or fall till the end of the year.
Interest Rates
Rising interest rates have historically threatened Bitcoin and other risk-on bets, including tech stocks and other traditional risk assets. For example, a few small interest rate hikes by the Federal Reserve (Fed) in the US and the European Central Bank (ECB) were enough for Bitcoin to experience the 2018-19 bear market, where its price dropped by a total of 85% from $20,000 per coin down to $3,000.
Back in December 2021, The Fed announced plans for multiple interest rate hikes in 2022 due to the surging inflation throughout the world. Even the prospect of this news was enough for Bitcoin to have a correction of about 42% from its new all-time high of $69,000 on November 10, down to $39,500 as of January 10.
Not all experts are bearish about interest rate hikes though. Some pundits believe there is no way that the Fed can raise rates aggressively that would reach the levels of current US inflation (at 7%) in an effort to protect the purchasing power of people. They believe so because raising interest rates by that much will likely bring the global economy to a halt, considering that we are already in the middle of a sustained recession.
If the Fed cannot decisively hike interest rates, capital markets, especially risk-on bets like Bitcoin, could strongly benefit from this because low-interest rates would further increase the inflationary pressures on the cash savings of investors. To combat that, investors may hoard assets like Bitcoin that could act as a hedge against the diminished purchasing power of the US Dollar.
Inflation
When there is inflation, the price of pretty much everything rises against fiat currency, regardless of whether the object has intrinsic value or not. In that sense, even a piece of trash in the garbage appreciates against the fiat currency when inflation surges.
Considering that perspective, the appreciation of capital assets like stocks, commodities, and Bitcoin can also be attributed to inflation. Inflation diminishes the purchasing power of a currency, so when there is inflation in the USA, the US Dollar value of capital assets should accordingly rise.
This situation can only be overcome by raising interest rates so that the purchasing power of people’s savings can be on par with the inflation rate. So if the major central banks around the world are unable to hike interest rates to the levels of inflation, asset prices may continue surging, which would greatly benefit Bitcoin in its quest to reach $100,000 per coin.
According to Bloomberg’s “Global Cryptocurrencies Outlook 2022” report, assets that have a limited supply like Bitcoin should perform well in 2022 in contrast to unlimited supply assets like fiat currencies, due to the expectations of further rising inflation.
On-Chain Outlook for Bitcoin
As the price of Bitcoin continues its downtrend, an increasing number of bitcoins in circulation has fallen into an unrealized loss. To put it in perspective, approximately 5.7 million bitcoins are now underwater, which corresponds to 30% of the circulating supply.
The 30% level has historically been a critical threshold in terms of Bitcoin profitability. For example, bitcoins in unrealized loss also spiked to the 30% level during the coronavirus crash when the price of Bitcoin crashed from $8,000 to $4,000. The same profitability level was similarly reached during the May and June 2021 market crashes.
How profitability reacts at this level will likely dictate Bitcoin’s next big move. If Bitcoin manages to hold this 30% level as support, it may start a new uptrend and so the price of Bitcoin may grow throughout 2022.
On the contrary, further weaknesses in Bitcoin may eventually trigger a large number of underwater sellers to finally capitulate and cause the price of Bitcoin to fall in 2022.
Bitcoin Technical Analysis
Bitcoin’s weekly Relative Strength Index (RSI) value of 40 has been a critical threshold that dictated Bitcoin trends. When Bitcoin has managed to keep its weekly RSI above the 40 level, it usually resulted in strong uptrends that year.
On the contrary, whenever Bitcoin broke down this magical 40 level on a weekly close, it has always ended with a capitulation event as you can observe in the below chart.
As an example, Bitcoin’s weekly RSI closed the week of November 12, 2018 below 40, which was followed by a capitulation event, where the price of Bitcoin dropped from $6,000 to $3,000 per coin.
As another example, Bitcoin’s weekly RSI bounced off the 40 level in December 2019. Following this close, the price of Bitcoin rallied from $6,000 up to $10,500 in January 2020.
The March 2020 coronavirus sell-off across all capital markets once again caused Bitcoin to make a weekly RSI close below 40, which was complemented with an over 50% crash from $8,000 to sub $4,000 per bitcoin in a matter of 48 hours.
And back in the summer of 2021, Bitcoin’s weekly RSI was able to bounce off the 40 level and that was exactly why the price managed to run from its July lows of $29,000 to a new all-time high of $69,000 as of November 10.
Now we are back at the 40 level again on the weekly RSI, as you can see in the above chart. If we close any of the coming weeks below 40, gates may open for a new sell-off in Bitcoin, which could retrace its price to summer 2021 lows.
The weekly RSI level of 40 will be very critical in determining Bitcoin’s next major move in that shell.