Bitcoin's Battle of the Wedges. Image source: Hektor Ehring Jeppesen, www.bitcongress.org
The cryptocurrency is touching the pivotal $50 000 mark at the height of its stunning $20000 rally in 2021. This incredible achievement is the result of several contributing factors of crucial importance.
The coronavirus pandemic compelled the Federal Reserve in the U.S. to lower interest rates to near-negative levels in a bid to cushion the economic fallout. This has consequently stifled global demand for the greenback, weakening the currency drastically.
The weak dollar contributed to the heightened demand for the Bitcoin, as investors worldwide scrambled for riskier assets because of the historically low U.S. yields. This trend was further bolstered in the United States, where the volume of retail traders increased sizably during the pandemic.
The combination of stimulus support for workers stranded at home and increased interest in trading led to an unprecedented upsurge in demand for high-risk assets, such as the Bitcoin.
Moreover, leading companies have warmed up to the cryptocurrency as of late, with Tesla saying that it might incorporate the Bitcoin as a payment method soon. The electric car manufacturer also stated that it is holding some of its cash assets in Bitcoins as opposed to regular currency.
Bitcoin's growing appeal amongst blue-chip companies indicates that the cryptocurrency is becoming more stable and that its price is bound to continue rising.
However, there are two potential problems with that assertion. Firstly, there is a limited number of Bitcoins that could be mined. This means that eventually, demand is going to grossly outweigh supply, creating a massive discrepancy in the two driving market forces. Undoubtedly, this will create an unprecedented situation on the market, possibly leading to a burst.
Secondly, the Bitcoin has a massive energy consumption, creating a carbon imprint on the environment. With global warming becoming an increasingly pressing issue globally, the Bitcoin is likely to suffer from bad publicity for it.
Overall, there is solid demand for the cryptocurrency at present that is being created from a string of contributing factors; however, this could be changed abruptly if any one of these factors is changed, potentially having a cascade effect for the rest of them.
There are additional technical factors that warrant close attention as well. The latest upswing was established after a successful breakout above the Falling Wedge, as shown on the 4H chart below.
Seeing as how a new Rising Wedge is currently being developed just as the price action is nearing the $50 000 benchmark, a potential bearish correction starts to seem more plausible.
That is not to say that a reversal is inevitable, just that there is mounting evidence to suggest such a possibility. Rising wedges typically entail potential reversals, which is further substantiated by the fact that the MACD is underpinning a Divergence in the making.
Bitcoin 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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