The cryptocurrency market had one of its best starts to a year in 14 years with a 28% increase in the price of Bitcoin and 31% for Ether (ETH). This first bullish part of January fuels the debate on whether or not the bear market that has been going on since November 2021 will end. Here are two charts that you absolutely need to know to participate in the topic of this debate.
The relative strength between Bitcoin and the Wall Street stock market
It is an almost unexpected start to the year for the cryptocurrency market, trapped by the consequences of the FTX affair in terms of confidence. While the stock market has rebounded sharply since last October and the US dollar has dropped more than 11%, the total market capitalization of cryptocurrencies has collapsed due to capital outflows from centralized platforms.
The strongly bullish start of the year for cryptocurrencies (+28% for the price of bitcoin and +31% for the ETH/USD rate) therefore makes it possible to recover ground on other risky assets on the stock market and to erase the bearish effects of the fall at the beginning of last November.
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But is this enough to support the end of the bear market that has been going on since November 2021? Note that for some, the bear market started in the spring of 2021 with the first upward reversals in interest rates on the credit market.
Indeed, the market rally from $16,000 to $21,000 allowed us to record the first resistance break in over 15 months, accompanied by a bullish reversal in various measures of volume, commitment and participation (such as the rebound from assets under management of the world’s first cryptocurrency ETF, the BITO).
This is certainly not a new bull run given the very high fundamental uncertaintybut on the other hand it seems fair to me to say that the bear market has neutralized itself. The challenge now is to prove that the $19,000/$20,000 price zone has recovered its support status, because breaking this zone again would be proof that the market has only experienced a dead cat bounce.
On the side of arguments for an end to the bear market, there are many bullish divergences active in the weekly data, such as the one on the Bitcoin/S&P500 ratio.
Graph revealing the relative strength relationship between the US stock market and the price of bitcoin (the US stock market is represented by the S&P 500 stock market index)
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Percentage drawdown curve of Bitcoin versus its ex-ATH
We pay tribute to the technical methodology of the “price/momentum” type, because there have been numerous bullish technical divergences between the price action and its first derivative in recent weeks. If you watch my videos every Tuesday, I use the RSI technical indicator to represent the momentum of the market, i.e. its underlying speed. These bullish divergences have therefore produced their technical rebound effect, I present a very relevant one in the chart below.
The latter shows the weekly curve (the points are updated every weekend, this graph therefore has a medium/long-term range) of the percentage drop in the price of bitcoin from its old all-time high (ATH for All Time High). On this curve we can observe the presence of a superb bullish divergence with the technical indicator RSI, here too it perfectly produced its bullish effect with the 28% rebound of BTC.
To give more validity to these discrepancies, we should now see BTC break through the resistance at $21,500which is the price level before the FTX deal fell.
Graph showing the curve of the percentage decline in the price of Bitcoin from its old all-time high
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Vincent Ganne is a market strategist, technical analyst, equity market educator and speaker on BFM Business. With a long experience in the field of analysis, he offers a global approach to financial markets. Both from a macroeconomic point of view and from a microeconomic point of view. Vincent Ganne also uses many aspects of chart analysis with the aim of predicting medium and long-term trends in financial assets.
Vincent Gane
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