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Key levels: Bitcoin and whether the crypto is undervalued

We look at a key level for Bitcoin, then dive into whether the crypto is fairly valued.

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In this week’s piece, we take a look at a key level for Bitcoin and crypto assets generally: the previous cycle high. We’ll then also analyse where the crypto sits in its current trend, explore a model that says it’s deeply undervalued, and check in on the Bitcoin/Ethereum cross and how you can trade it.

What is Bitcoin’s “previous cycle high”?

Bitcoin’s previous cycle high refers to the price that Bitcoin reached in its previous bull market. The 2017 bull-run saw the cryptocurrency break $US1000 that January, before hitting a high that year in December of over $US19,000. The price sold off after that run-up; however, a break-out from that level in 2021 opened up a fresh run for Bitcoin to make new record highs.

The reason the previous high is important is that Bitcoin has never fallen below that level in its history. It marks a key level of technical support that, if broken, helps define the series of higher-highs and lower-lows that define its uptrend. As you can see in the chart below, a logarithmic chart of Bitcoin’s price shows a smooth and well-defined uptrend.

A break below the previous all-time high of around $US19,000, it is said, could usher in a deeper bear market and bring into question its long-term uptrend.

Source: Reuters

Bitcoin finds support at previous high

The significance of the previous all-time high is that Bitcoin is currently testing it. As we outlined here in the past, there are several factors, mostly linked to the US Federal Reserve’s tightening cycle, that are pushing Bitcoin lower. The bear market has seen the crypto find support at around $US19,000, with prices seemingly consolidating at that level.

The bull-case is that this marks an opportune risk-reward for buying Bitcoin, given it has historically respected these types of levels. Of course, the crypto-currency could yet break that level. If that were to happen, the next major level isn’t until around $US12,000.

Bitcoin weekly chart

Source: IG
Source: Fidelity Digital Assets

Checking in on the Bitcoin/Ethereum cross

Finally, we take a look at the Bitcoin and Ethereum cross, to assess Bitcoin’s value against its second biggest crypto counterpart.

As we wrote about here in the past, Ethereum is attracting increased interest this month because of the upcoming Merge, which many advocates believe could accelerate progress towards the so-called “flippening” - or event where Etherereum’s value surpasses Bitcoin’s.

As can be seen in the chart below, the Bitcoin/Ethereum cross is approaching a very key technical level, which if broken, may spark a greater upside for Ethereum against Bitcoin.

Bitcoin/Ethereum weekly chart

Source: IG

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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