In this first regular newsletter for 2022 following the holiday period, we will use the opportunity to take a look at the long-term picture for Bitcoin - the mother of all cryptocurrencies, now considered by many as a viable alternative to gold and a hedge against inflation risks.

In this context, we will discuss the current picture for BTC and what may lie ahead for this year.

After two great years in 2020 and 2021, investors are wondering if 2022 can be another great one for Bitcoin. 

Lots of QE and money printing from the Fed and almost every other central bank around the globe, accompanied by unprecedented amounts of debt and Government spending, were the main factors that fueled big rallies in inflation-hedge assets like gold and Bitcoin during 2020, some of which extended into 2021.

However, things look different as we start 2022. Inflation has been rising for the whole of 2021 and has reached a 40-year high of 7%, as yesterday’s CPI report showed (highest since 1982). With the economic recovery on track and the unemployment rate back to pre-Covid levels below 4%, it’s no surprise that the Fed’s attention has shifted fully to inflation, which according to their mandate, should run close to 2%.

Obviously, inflation has become the big worry now, and the political pressure on the Fed has mounted significantly in the past several months as the CPI index continued to climb. The Fed is now cornered in a situation where they have to act by tightening policy and reducing the money supply. This appears to be the big risk going forward for hedge assets like gold Bitcoin. 

If the Fed proceeds with 3-4 rate hikes as markets currently expect and then further starts QT (Quantitative Tightening) later this year, it will be very difficult for asset prices to continue their rise. If easy money and QE were the main reasons for the strong performance of stocks, metals, and cryptos in 2020 and 2021, what will happen when opposite forces like tightening the money supply and QT are in force?

On balance, the Fed’s hawkishness is likely to act as a headwind for Bitcoin during 2022. While this definitely doesn’t mean that prices will crash, it does mean that big rallies are unlikely to be achieved easily.

As we can see on the chart below, the recent price action also sends a warning for the period ahead.

Namely, BTC is currently testing the big 40K support area. A break below would open greater downside potential and could lead to a quick follow-through lower. In such a scenario, the next big technical zone lower is the 30K area, which appears likely to be reached under such a scenario.

The 30k price zone is then a crucial technical area because several technical factors are converging here:

1. It represents the major lows from 2021
2. It is where the support trendline that connects back to the March 2020 lows currently stands. Note the potential here for a big, long-term rising channel, as shown on the chart. 
3. The 100-week moving average is also in this area (orange line)

So, if 30k is reached and the support there holds, Bitcoin may start climbing, possibly to new all-time highs, or stay in a range roughly between 30k and 60k. 

However, if this 30k support breaks, attention will turn to the 20k area as the next crucial support zone lower. This area represents the major highs from 2017, and a retest there would likely attract buying interest from long-term investors.

Conversely, a bullish scenario from current levels would mean that the current 40k support zone holds. In this case, BTC needs to move above the 45-46k area (previous support) for the bulls to reclaim control. Moreover, a move above 50k will further confirm this bullish scenario, which could then lead to a quick continuation to the upside, possibly toward 60k or higher.