Bitcoin (BTC) may be headed for a big gain, similar to the bull market of mid-2019, which saw the price increase by nearly 250%. The leading cryptocurrency by market value has risen almost 40% to $23,000 this month, according to CoinDesk data. This follows a year-long decline that resulted in a 68% decrease in price, followed by a prolonged period of consolidation at around $18,000.
This rally coincides with the U.S. Federal Reserve nearing the end of its liquidity-tightening cycle, which has affected risky assets, including cryptocurrencies. This is similar to the conditions that preceded bitcoin’s bull market in the second quarter of 2019, when the price increased by 247% to $13,800 as the Fed’s tightening cycle peaked.
Additionally, the Fed’s previous tightening cycle, which lasted three years, started in December 2015 and ended December 2018, and lifted the central bank’s benchmark borrowing rate to the 2.25%-2.5% range. However, last year, the Fed raised the benchmark borrowing rate from 0% to 4.25%. Now the market expects it to slow the pace of rate increases to 25 basis points in February and March and then pause its rate-hike cycle, with forward-looking indicators pointing to a marked slowdown in inflation and economic activity.
Furthermore, Bitcoin’s market action since July looks similar to the moves witnessed from late November 2018 to early April 2019. The seller exhaustion seen last November and the subsequent turn higher are consistent with Bitcoin’s history of bottoming out 17 months ahead of the mining reward halving and rallying in the year leading up to the event. Bitcoin’s fourth reward halving, a programmed code reducing the pace of supply expansion by 50% every four years, is due to occur in March or April.
Overall, the path of least resistance for bitcoin appears to be on the higher side. However, it’s worth noting that some traders may prefer buying ether (ETH), the second-largest cryptocurrency by market value, over Bitcoin.