Bitcoin’s chances of hitting US$40,000 are top of mind for crypto speculators, as they head into the final stretch of a year during which the largest digital asset more than doubled in price.

The token has rebounded about 130% over the past 11 months from 2022’s crypto rout, outstripping investments like stocks or gold. Hopes for Federal Reserve interest rate cuts next year, and expectations that the US will allow its first spot bitcoin exchange-traded funds (ETFs), together created a potent elixir.

The rally weathered a US crackdown that put Sam Bankman-Fried behind bars for fraud at FTX, and handed top crypto exchange Binance and its founder Changpeng Zhao rap sheets and big fines. For optimists, the drive to curb questionable practices and the recent flurry of ETF applications point to a maturing industry, and the potential for wider crypto adoption.

“In order to get to US$40,000, we just need that approval for the spot bitcoin ETF,” said Fiona Cincotta, a senior financial markets analyst at City Index Ltd. The token recently lost some steam, in part as big swings in equities and currencies attracted the attention of investors, she said.

Bloomberg Intelligence expects a batch of US spot bitcoin ETFs to win the Securities and Exchange Commission's approval by January. A reset in rate bets or unexpected snarls for the ETFs could yet derail bitcoin, but for now sentiment is upbeat.

MicroStrategy Inc, the largest publicly-traded corporate holder of bitcoin, last month bought US$593 million more of the token, taking its pile to roughly US$6.5 billion. Michael Novogratz, the founder of Galaxy Digital Holdings Ltd, on Wednesday said bitcoin a year from now may reach its 2021 peak of almost US$69,000.

Bitcoin had risen 1% to US$38,121 as of 2.13pm in Singapore on Friday. Smaller tokens like Ether also gained. Three charts below highlight key bitcoin trends.

Lesson from history

Bitcoin’s weekly relative-strength index, a momentum gauge, closed above 75 last week. While readings above 70 are viewed as signalling “overbought” conditions, the picture is not so straightforward. Over the past decade, the token climbed an average 15% over the subsequent month after printing a weekly relative-strength index reading of more than 75 - an advance that would take it well past US$40,000.

Hint of caution

A technical indicator that tries to capture the impetus behind an asset’s movements, the moving average convergence/divergence (MACD) study, provides pause for thought. The MACD flags ebbing momentum of late, displayed by the span of bars showing negative readings. At the same time, the bitcoin rally has struggled to push conclusively past US$38,000.

There have been multiple attempts “to cement a toehold above US$38,000”, said Tony Sycamore, a market analyst at IG Australia Pty. “Each time, the push higher has failed. All that said, I do think there is a good chance bitcoin has a look above US$40,000, either following the ETF announcement, or as risk assets resume their run higher into year end,” he said.

Options insight

The pattern of positions in the bitcoin options market hints at a US$37,000 to US$40,000 trading range in December. The traders selling the bullish call options with a US$40,000 strike are clearly willing to take the other side of the wager, indicating that level is going to be a key test area for bitcoin’s resurgence.

  - Bloomberg