2021 has been a huge year for cryptocurrency, and 2022 is shaping up to be just as important for this industry / asset class. Here’s a quick overview of some major events this year: Bitcoin and Ethereum hit all-time highs, Coinbase IPO, Dogecoin going crazy, Elon Musk’s tweets, cryptocurrency-ranking institutions as an asset class, large banks opening crypto trading rooms, the rise of NFTs, and the rise of decentralized finance. I’m sure maybe I missed some, but you get the point. For those who have invested well in crypto, this has been a great year. My personal cryptocurrency wallet has been the best of the bunch.
Before looking at the technical charts, let me go over a few fundamentals that I’m watching in 2022.
First of all, I want to see cryptocurrencies drift away from the stock markets. When I say this I mean major crypto like Bitcoin, Ethereum, Litecoin etc. I do not put the same and DeFi parts here. They have a different kind of macro-ecosystem.
A quick reminder on the risk disabled versus the risk enabled. An environmental risk is one where money flows into riskier assets. In the asset allocation model, this mainly means stocks. When the stock markets are doing well and going up, we call it an environmental risk. On the contrary, we have a risky environment. Money is flowing into less risky or safer assets. Things like the US dollar, but mostly US Treasuries and bonds. I know it sounds crazy that the money ends up in government bonds that pay little, but this is the asset allocation model that funds follow. As a fund manager, you are not paid to sit in cash. Money must generate returns, and the asset allocation model of allocating funds to stocks and bonds based on the risk factor has been the dominant model.
Regular readers and Equity Guru Discord members (if you’re not yet a member, it’s free!) Know that I use the term risk a lot. This is a great way to determine what the stocks will do. Every morning when I wake up, I first look at the world’s largest market, the debt market, to determine where stocks are going to go. It’s a habit worth making for your morning market routine. Take a look at the TLT or BND to determine if the money is in the safety of the bonds and compare the movement of the DXY and the VIX.
Where does cryptocurrency fit into all of this? Well, at the moment the major cryptos are operating as risky assets. This means that they move in a positive correlation with the stock markets. If the stock markets go up, Bitcoin and other major cryptos go up. If the stock market goes down, Bitcoin and other cryptos go down. Why is this important? Because traditionally crypto bulls have said that Bitcoin and other crypto are safe haven assets. Money will flow there for safety, but we have seen something completely opposite. Mind you, the same applies to gold, although just recently precious metals are showing signs of diverging from the stock markets. Even going up with the US dollar. Probably the game of inflation, but metals are also at huge technical levels. In 2022, also watch for cryptocurrency divergence.
Right now, the Federal Reserve and the mainstream media are blaming the pandemic and supply chains for rising inflation. The truth is, we are in a situation where there is more money for the same number of goods and services. Much to blame is the Fed’s money printing. In articles in the past, I have spoken about the currency wars. Central banks will want to keep their currencies low in order to stimulate exports, and well, maintain the illusion that the economy is doing well by inflating asset prices. But I hope you all know that the stock market and the real economy are two entirely different things. The real economy appears to be dead and will continue to do so with more restrictions and bottlenecks as the stock market continues to rise as there is no better place to go for performance.
If you want to bet against central banks and debt, then precious metals and cryptocurrencies are where you want to be. I cannot stress the importance of holding these assets for the long term. You don’t want to hold fiat. I prefer metals as hard assets just because …
Central bank digital currencies. We know they are coming, and when they do, central banks and governments can make it difficult to use private coins. This would make sense because central banks traditionally do not want any competition. This is why the definition of crypto as being MONEY or an ASSET CLASS will be very important. If it is the former, then it will be in direct competition with central banks. The latter would mean that digital assets would continue to act as an asset risk.
This year we have seen China ban cryptocurrencies and their trading. Meanwhile, El Salvador adopted Bitcoin as its currency. 2022 will be a big year for regulations imposed (or not imposed) by governments. Few people think that the US government is going to abuse them because they don’t want to follow in the CCP’s footsteps. But as the person investing in this space, you should always be wary of it. Even Ray Dalio, who owns Bitcoin, warns that governments can act to deter money from flowing into Bitcoin.
This leads to another trend, which will be Decentralized Finance (DeFi). This sector is quickly becoming what cryptocurrencies were meant to be: currencies distant from big governments, big banks and big corporations. With Bitcoin owned by companies and funds now, Bitcoin is becoming a bit too mainstream for crypto enthusiasts, and regulations are sure to come. In saying this, I expect DeFi tokens to continue to perform well, and even move away from what Bitcoin and other major cryptos are doing, because it’s a whole different market.
With DeFi comes the term citizen bank. One business that I will be watching is Square. Well, now they’re called Block, which probably gives a good clue as to which direction they’re going. Jack Dorsey is a crypto fan. He recently cautioned against hyperinflation (applying my definition, you want to own metals and cryptos because they are NOT fiat). And of course, he resigned as CEO of Twitter. It looks like Mr Dorsey will be focusing more on Block, and I think in 2022 they will be making a major breakthrough / announcement in crypto payments and even DeFi.
The stock is currently testing a major Fibonacci level on the weekly chart. We see a few buyers here, as evidenced by the large wicks on the last two weekly candles. Getting a close above $ 187.36 would be huge for the action going forward. Square could be one of those stocks to hold for the long term. It still only has a market cap of $ 77 billion compared to PayPal’s $ 225 billion, Visa’s $ 470 billion, and Mastercard’s $ 354 billion.
I know it’s been a lot to digest, but I’m really excited about this space going forward. Although I am more bullish on this space as a way out of fiat, rather than major adoption of crypto as a currency. In terms of major external influences for 2022, it can be summed up by these words: government, central banks and Block inc.
Above is the Bitcoin Daily chart. As I said, crypto moves in tandem with stocks. I expect stocks to continue to rise, so naturally I expect Bitcoin and other major cryptos to rise as well. Just for short-term price action, Bitcoin points to a reversal. The price broke my moving average, just on the last day the US stock markets were open before it closed for Christmas. All we need is a daily close over $ 51,000 and we’re good to go!
But you’re all here and still reading the 2022 price levels. For that, let’s zoom into the weekly chart. Bitcoin remains in an uptrend as long as the weekly low is maintained. This is in the $ 40,500 area. You can see how this area acted as a reversal area, being both support and resistance. Very recently, buyers have intervened near this area. If we stay above this zone, new records in 2022 are realistic. The next major resistance areas above would be $ 60,000 and then the previous all-time highs at the close of the $ 65,500 candle.
If we do the opposite and close below $ 40,500, then the $ 31,600 area becomes our hit or break level. A close below this zone would bring Bitcoin back below $ 20,000. It’s no fun for crypto bulls, but for that to happen we would either need a stock market sell-off or governments impose tough regulations.
I think Ethereum will have a big year in 2022. Ethereum 2.0 and other updates will hopefully fix the gasoline and speed issues, although the gasoline costs aren’t that bad. than before. The Ethereum ecosystem is dynamic with NFTs and also for the staking of DeFi tokens. However, there are tokens and projects promising to blend into the Ethereum ecosystem allowing users to use that token or even Bitcoin. The speed and costs are going to be huge for Ethereum, and if this is not resolved, crypto traders could turn to Cardano and other tokens. The current ETH ecosystem is huge, but if we get this bridge people could just use other tokens.
Technically, Ethereum is in a major support area as I write this 2022 outlook. If Ethereum holds, we will hit new highs in Q1 2022. A close above $ 4640 confirms this, and the uptrend higher higher continues. By the way, the highest Ethereum low is around the $ 2,800 area. Cryptocurrency presents a great downside buying opportunity here and if the stock markets continue to rise Ethereum will follow suit.