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Bitcoin Poised for Surge as Prices Compress Near the Breakout Zone

By:
Muhammad Umair
Published: Jun 3, 2024, 13:21 GMT+00:00

Key Points:

  • Signs of slowing job growth and easing wage pressures suggest potential Federal Reserve rate cuts, leading investors to consider Bitcoin as a hedge against economic uncertainty.
  • Technical evaluations of Bitcoin show bullish solid patterns, and price compression at the resistance indicates a price breakout.
  • Historical trends demonstrate Bitcoin's strength and growth potential during economic turmoil, highlighting its role as a digital alternative to traditional safe-haven assets.
  • Investors should be cautious of Bitcoin's high volatility and market risks, but its fixed supply and unique attributes make it an attractive option for protecting and growing wealth.
Bitcoin. FX Empire

In this article:

Signs of slowing job growth and easing wage pressures suggest potential Federal Reserve rate cuts, leading to lower yields on traditional investments and potentially driving investors towards Bitcoin as a hedge against economic uncertainty. This article presents a technical evaluation of Bitcoin to analyze recent market dynamics and find future price movements.

Current trading shows prices within bull flag and the emergence of inverted head and shoulders and triangle formations indicate a likely breakout in Bitcoin prices. Economic instability is expected to drive the market in the coming months, potentially leading to significant price increases.

Economic Uncertainty and Bitcoin’s Potential

The current economic landscape shows mixed indicators that could significantly impact Bitcoin prices. With the signs of slowing job growth and easing wage pressures, there is potential for Federal Reserve rate cuts, which lead to lower yields on traditional investments. This monetary easing might drive investors towards Bitcoin, viewed as a hedge against inflation and economic uncertainty. Additionally, the reduced inflation expectations usually dampen demand for safe-haven assets, but the unique position of Bitcoin as a digital alternative could attract investors to protect their wealth.

On the other hand, retail sales are declining but remain in line with pre-pandemic trends supported by full employment and government initiatives. However, the weak ISM Manufacturing PMI at 49.2% and the services employment index decline to 45.9% signal potential declines in job growth within the services sector. The demand for Bitcoin might increase if unemployment rises due to contractions in the services sector.

Historically, Bitcoin has shown resilience and growth potential during economic turmoil. The chart below illustrates the relationship between the average hourly earnings of production and nonsupervisory employees and the unemployment rate. This chart highlights the high inflation scenarios of the 1970s. During that period, average hourly earnings growth exceeded the unemployment rate.

This phenomenon leads to significant inflation and a boost in safe-haven assets. The year 2024 presents a similar situation, but with the notable presence of a superior currency—Bitcoin. Bitcoin’s fixed and limited supply makes it an attractive alternative to fiat currencies and a hedge against inflation.

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Overall, the potential for Federal Reserve rate cuts, combined with a unique position as a digital alternative to traditional assets, makes Bitcoin an attractive investment. As economic instability persists, Bitcoin’s resilience and fixed supply position it as a strong contender for investors seeking to protect and grow their wealth.

The technical outlook for Bitcoin is highly bullish as shown in the monthly chart below. Historically, Bitcoin’s price increases in cycles, reaching record highs once the breakout line is breached. Once this breakout occurs, Bitcoin prices continue rising without looking back. For example, after bottoming at $2 in October 2011 and breaching the breakout line in November 2012, Bitcoin’s price surged to record highs by November 2013.

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First Bottom

This surge in Bitcoin’s price from October 2011 to November 2013 was due to increased mainstream media attention, growing public interest, and significant developments in the cryptocurrency ecosystem. During this period, Bitcoin began to gain recognition as a viable alternative to traditional currencies, driven by its decentralized nature and the promise of financial sovereignty.

The Silk Road marketplace, which popularized Bitcoin as a medium of exchange, and the Cyprus banking crisis in early 2013 highlighted the risks of conventional banking systems, also played pivotal roles in boosting Bitcoin demand. Additionally, implementing more user-friendly platforms for buying, selling, and trading Bitcoin made it more accessible to a broader audience, fueling further demand and speculation. These factors led to a surge in the adoption and valuation of Bitcoin which resulted in a dramatic price increase in 2012 and 2013.

Second Bottom

After hitting the record highs in November 2013 at $1,163, the price corrected lower, forming a bullish price action. The bottom of this correction was at $152 in January 2015, and it reversed higher again to break record highs in February 2017. This bottom in January 2015 is known as the second bottom. The breakout from the breakout line resulted in another price increase which hit record highs in December 2017. This strong price increase from January 2015 to December 2017 was driven by technological advancements and growing recognition of its potential as a digital asset.

During this period, institutional interest began to rise, with notable investments and endorsements from prominent figures and companies legitimizing Bitcoin in the eyes of the broader public. Implementing the Lightning Network and Segregated Witness (SegWit) to enhance transaction speed and scalability boosted confidence in Bitcoin’s long-term viability. Regulatory clarity in several jurisdictions also reduced uncertainty, making Bitcoin a more attractive investment.

Additionally, the proliferation of cryptocurrency exchanges and financial products, including futures contracts, provided new avenues for trading and speculation. Media coverage amplified public interest, leading to a significant influx of new investors and speculative buying. This further fueled the price rally to hit record highs at $19,666 by December 2017.

Bitcoin Third Bottom & Bullish Implications

After hitting record highs in December 2017, the price corrected lower for 12 months, marking the bottom again in December 2018 at $3,122, and initiated a strong surge again by breaching the breakout level in November 2020. This bottom is known as the third bottom and the breakout from the breakout line was fueled by institutional adoption and increasing recognition of Bitcoin as a hedge against inflation.

The COVID-19 pandemic prompted unprecedented monetary stimulus and low interest rates from central banks globally, leading to concerns about currency devaluation and encouraging investors to seek alternative stores of value. Major corporations and institutional investors, including Tesla, MicroStrategy, and Square, publicly disclosed significant Bitcoin purchases, which validated Bitcoin’s legitimacy and sparked further interest from other institutional players.

Additionally, the rise of decentralized finance (DeFi) and advancements in the cryptocurrency ecosystem, such as improved infrastructure and regulatory developments, made Bitcoin more accessible and attractive. Public awareness and media coverage surged, drawing in retail investors enticed by the strong upward momentum and the perception of Bitcoin as “digital gold.” These factors resulted in a dramatic price increase, with Bitcoin reaching new all-time highs above $60,000 by March 2021.

It is interesting to observe that Bitcoin has followed similar patterns before breaking higher. After hitting $69,000 in November 2021, the Bitcoin price started consolidating and dropping lower to mark another bottom identical to previous bottoms. A breakout from this level may likely initiate another price surge in the cryptocurrency market, as it has done historically. Prices are trading at the resistance and show signs of breakout. A breakout from here will initiate another strong surge, confirming the fourth bottom in Bitcoin.

Evaluating Bitcoin’s Bullish Formations and Market Potential

To further understand the historical analysis of Bitcoin, the chart below presents the bullish pattern formation before a significant upward movement. The weekly chart demonstrates that the price forms an inverted head and shoulders pattern before breaking higher. Once the price breaks this pattern, volatility increases further, leading to substantial price surges. Historical examples include the inverted head and shoulders patterns formed at the January 2015 and December 2018 lows, illustrating how prices increased significantly afterward. These bottoms are the second and third in the monthly chart discussed above.

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Similarly, a head and shoulders pattern has formed in Bitcoin prices, with the head at the November 2022 low and the shoulders at the June 2022 and March 2023 lows. The price has broken the neckline around the $30,740 level, leading to a price surge.

Notably, the breakout line, where the real upward movement starts, lies around the $72,000-$73,000 level. A breakout from this range is expected to initiate a strong surge in Bitcoin prices. It is interesting to note that prices are showing strength around this level, further strengthing the possibility of breakout.

Moreover, the real buy signal emerges when the price hits the RSI of around 30, as per the Bitcoin history studies. The last strong buy signals emerged in July 2022 and November 2022. Currently, prices are considered overbought, which increases the risk of a short-term price correction. However, the overall price action remains strongly bullish.

Let’s zoom out the weekly chart to a daily scale to observe the latest price consolidation at upper resistance levels, as seen in the above weekly and monthly charts. It was found that Bitcoin prices are consolidating within bull flag patterns, with an inverted head and shoulders formed, with the head at $56,500 and shoulders at $59,700 and $60,200. The prices are currently consolidating at the resistance line and showing strength. If Bitcoin can break the record highs at $73,800, it will initiate another surge in the market.

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When zooming in on the daily chart to a 4-hour scale, the prices are now forming a triangle pattern in the short term. This triangle pattern forms at the upper resistance level, as seen in the daily, weekly, and monthly charts. The prices are approaching the apex of the triangle which suggest price congestion. A strong upward move will be confirmed if prices break out after forming this pattern.

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It is interesting that Bitcoin prices are moving within an uptrend and are on the verge of a breakout on the monthly chart. A similar pattern is observed on the weekly chart, where prices are consolidating at record highs and on the verge of a breakout. These consolidations further increase the bullish strength in Bitcoin prices. Moreover, a bull flag on the daily chart and a triangle formation on the 4-hour chart highlight the price strength and indicate that a higher breakout may lead Bitcoin prices to much higher levels from here.

This price compression, the bull flag pattern, inverted head and shoulders, and triangle formation suggest that the breakout could drive prices above $100,000 if prices break $73,800. Investors may consider buying Bitcoin during dips or after the breakout of around $73,800.

Risk Analysis

While Bitcoin presents significant potential as an investment, it has risks. Economic uncertainty can lead to high volatility in Bitcoin prices. For example, if the Federal Reserve’s rate cuts do not materialize as expected or inflationary pressures persist beyond current projections, investor sentiment could shift rapidly, leading to sharp price fluctuations. Additionally, positive and negative regulatory developments can impact Bitcoin’s market value immediately and profoundly. Increased scrutiny or adverse regulations could dampen institutional interest and reduce the perceived safety of Bitcoin as an investment.

Moreover, the technical aspects of Bitcoin’s market also pose risks. On a linear scale, Bitcoin prices exhibit strong fluctuations and high volatility, with movements of 80% or more during the correction. However, the overall trend remains bullish when viewed on a logarithmic scale. Investors might consider buying Bitcoin when the market has corrected up to 80% or more during the latest surge from the bottom.

Nonetheless, purchasing Bitcoin at higher levels, even during a price increase, carries the risk of market corrections, which could lead to significant short-term losses. Currently, the prices are trading at the breakout line and are poised to initiate a breakout once this level is breached.

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Conclusion

In conclusion, the current economic landscape presents a unique opportunity for Bitcoin as a hedge against traditional market uncertainties. Signs of slowing job growth and easing wage pressures suggest potential Federal Reserve rate cuts, potentially driving investors away from lower-yielding traditional investments toward Bitcoin.

Technical evaluations indicate strong bullish patterns, including bull flag, inverted head and shoulders, and triangle formations, pointing towards a potential breakout in Bitcoin prices. The price compression on 4 hours and daily charts indicates a breakout from $73,800 might take Bitcoin to $100,000 or higher. Investors can consider buying Bitcoin during the corrections or the breakout.

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About the Author

Muhammad Umaircontributor

Personal ● Name: Muhammad Umair, PhD ● An author with FX Empire since January 2023 Education And Work School(s) Attended: PhD in Electrical Power

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