Bitcoin's Constructive Technical Image – Bitcoin USD (Cryptocurrency:BTC-USD)
Bitcoin (BTC-USD) just continues to surge higher and higher in recent months. In fact, BTC is up by about 80% since the bottom last year and is on the verge of breaking through crucial resistance levels between $6.5K and $10K.
In addition to Bitcoin’s favorable technical setup, BTC’s fundamental backdrop remains constructive and has the potential to improve substantially going forward.
Ultimately, Bitcoin should break through upcoming resistance levels at $6.5K, $8K, and $10K. Due to strong technicals, improving fundamentals, and strengthening sentiment, Bitcoin could conceivably achieve top-end price targets within the next 6-12 months, a 75% gain.
Bitcoin’s Strong Technical Image
Bitcoin’s technicals appear solid right now. In fact, there is a very strong chance that Bitcoin has bottomed and is now in the very early stages of a new bull market.
Bitcoin (BTC) 2-Year Chart
Source: Bitcoincharts.com
After hitting a low at about $3,200, Bitcoin successfully retested the low several months later. Since then, the digital asset (DA) has surged by over 80%, indicating that a new bull market has finally arrived.
BTC 1-Year Chart
Now, Bitcoin appears to be forming a very solid cup and handle pattern. Moreover, most of the downside selling appears to have been exhausted in the capitulation phase of late last year’s brutal sell-off.
Now, we’re beginning to see the opposite, increased buy interest, implying momentum is shifting to the upside here.
However, before you begin to celebrate, there are still some very crucial resistance levels coming up.
Next Stop $6.5K
Bitcoin looks set to attack the $6K level shortly, however, major resistance comes at $6.5K.
$6,500 was the long-term support following Bitcoin’s crash in late 2017. This level should essentially determine whether this rally will fizzle out or if the Bitcoin bull market is truly back and ready to rock higher.
What Comes Next?
Next, Bitcoin is likely to consolidate around $6K before making a serious run at higher levels. Afterwards, BTC should break above $6.5K and head towards its next resistance level at $8K. Then, I expect Bitcoin will test the all-important $10K level within the next 12 months.
Looking at GBTC
Grayscale Bitcoin Trust (OTCQX:GBTC) is an alternative way to gain exposure to Bitcoin. Although the fund is backed by Bitcoins, it trades at a premium to Bitcoin due to its ETF like attributes. While the premium to own GBTC varies due to market conditions, it currently trades at around a 25% premium to Bitcoin.
Nevertheless, let’s look at some technicals
GBTC Since 2017
We see that in its last bull phase, GBTC ran up substantially. At one point, the ETN had appreciated by over 3,300% in under 1 year.
GBTC’s chart looks extremely bullish right here.
We can see a similar pattern developing here as in Bitcoin, a clear cup and handle, likely to lead to a major breakout above $8. Next stop is $10, and then $12 after that.
Also, the 200-day MA is on the verge of crossing over the 50-day MA, implying improving momentum and technical conditions.
Constructive Fundamental Backdrop
Still, Very Few People Own Bitcoin
Despite the endless hype about Bitcoin, very few people (relatively speaking) own the DA, and even fewer use the cryptocurrency regularly. I’ve written in previous research articles that likely only around 18 million people own Bitcoin, and even fewer, around 3 million use it regularly.
This implies that out of the 3.2 billion people with internet access worldwide, only about half of one percent participate with Bitcoin. This phenomenon leaves about 99.95% of the market left untapped for Bitcoin penetration.
The Network Effect Keeps Growing
Bitcoin’s blockchain network keeps expanding continuously. Right now, there are about 37 million blockchain wallets (accounts). This is a YoY growth rate of about 54%.
Once 100 million users join the Bitcoin network where would the price be?
In my prior analysis, I concluded that in a bull market phase, Bitcoin could possibly top out at around $100K once 100 million blockchain accounts are in existence. Even if you think that’s too aggressive, a $50,000-100,000 range seems attainable within the next 2-3 years.
If we add a similar 50% annual growth rate to this and the next year, Bitcoin wallets would be at around 83.25 million. Moreover, if we move projections out for a third year, Bitcoin accounts could be at around 125 million.
Bitcoin’s growth rates could also vary, and based on Bitcoin’s popularity, growth rates could potentially increase above 50% annually in the next few years. This was actually a very slow year for Bitcoin relative to last year’s 85% surge in wallet creation.
Blockchain Wallet Growth Trajectory 2 Years
Source: Blockchain.com
Furthermore, we see that a 125 million user estimate may be conservative, given past growth rates. So, Bitcoin user accounts could reach 100 million within the next 2-2.5 years according to my intermediate-term targets.
The 100,000,000 wallet target is important
Aside from being highly attainable within the next few years, the 100 million mark is extremely symbolic and is crucial from a psychological standpoint as well. 100 million is a respectable number and should help put Bitcoin on the map in a big way.
Supply is Limited, Unlike Fiat’s
One crucial element not to overlook is that bitcoin’s supply is limited. For instance, there are about 17.7 million Bitcoins in circulation right now. The maximum number that can ever exist is a minuscule 21 million.
What do you think will happen when demand picks up?
On the other hand, there is about $7.6 trillion in worldwide physical fiat supply. Moreover, the maximum amount that could ever exist in circulation is essentially limitless. If we include M2 and M3 money supplies, there is nearly $100 trillion worth of relatively easily accessible fiat currency assets in the world.
What would you rather invest in, or store your wealth in, an asset with a fixed supply limit or an asset that is continuously being devalued and can be created essentially out of thin air endlessly?
Right now, Bitcoin’s market cap is $102 billion, roughly 1 tenth of 1% percent of the global money supply. Since Bitcoin is essentially competing for a piece in this huge global market, its market share is likely to expand in the future. At just 1% of the world’s money supply, 1 Bitcoin would be worth roughly $60,000 today.
Extremely strong Long-Term Potential
Bitcoin has substantial potential to become a global digital store of value instrument as well as a worldwide medium of exchange vehicle. This provides Bitcoin with enormous upside potential as it is essentially competing for market share in multiple trillion dollar markets.
Bottom Line: Buy Bitcoin Now, Thank Yourself Later
The bottom looks to be in, and Bitcoin is well on its way to testing multiple key resistance levels. Bitcoin is likely to consolidate around $6K, then break above $6.5k. Moreover, bitcoin is likely to revert to prior highs of $8-10k within the next 12 months.
Additionally, the bullish technical image is supported by a constructive fundamental backdrop. Positive sentiment, momentum, and favorable fundamental elements should continue to propel Bitcoin much higher from here.
I remain long BTC and other cryptocurrencies, and my one-year price target for Bitcoin is $12,000.
Mind The Risks
Detrimental Government Regulation
Possibly, the No. 1 long-term threat Bitcoin faces is detrimental government regulation or an all-out Bitcoin ban. If major Bitcoin-friendly governments like the U.S., E.U., Japan, South Korea, and others follow the footsteps of China and essentially make Bitcoin use and trading illegal, it could have catastrophic consequences for Bitcoin’s price.
Continued Functionality Issues
Another risk factor is the concern that Bitcoin may never become a widely-used transactional currency due to its issues with speed and scale. Yes, the Lightning Network promises to solve many of the issues associated with speed, cost, and scale, but there’s no guarantee that the LN will become widely adopted, even over time.
Therefore, there’s the risk that newer and more efficient digital currencies like Litecoin, Bitcoin Cash, and others may make Bitcoin somewhat obsolete as an actual medium of exchange for the masses.
Continued Security Breaches and Fraudulent Activity
Continued security breaches in the Bitcoin world concerning exchanges and individual wallets is a constant concern. If significant breaches continue, investors and users may start to lose confidence in the system and demand could decrease as well.
Likewise, there are fraud cases. In an industry that’s still loosely regulated, substantial fraudulent activity is a persistent risk factor. Just like with security breaches when people get ripped off, it reflects poorly on the entire industry and demand along with prices can suffer.
Bitcoin is Not for Everyone
The bottom line is that Bitcoin is not for everyone. I view it as an investment for people with a relatively high risk tolerance, and even then, maybe only 5-20% of a portfolio’s holdings should be allocated to digital assets.
Bitcoin is still a relatively new phenomenon, and no one truly knows exactly how it’s going to play out over the long term.
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Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article expresses solely my opinions, is produced for informational purposes only and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please consider consulting a professional before putting any capital at risk.
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