There are a lot of different cryptocurrencies out there, although how can you tell which cryptocurrency to buy in 2021? We’ve made a lot of commentary around the four year halving cycle and how it drives the Bitcoin price. Here is the first article we wrote for Finweek on the topic. Perhaps it would be a good use of time to read as it will give you a better idea of what our bullish thesis for Bitcoin is based on. Bitcoin is not the only cat in the jungle though, so let’s look at some other cryptocurrency charts and hopefully we can figure out which cryptocurrency to buy in 2021.
The grand daddy Bitcoin. We made a few comments around our view on Bitcoin in the Weekly game plan blog on the 27th of December 2020, you can read that blog post here. Today though, we expand our view a little. As usual with cryptocurrencies, we use a weekly logarithmic chart in order to more accurately identify long-term patterns. Since the price moves in absolute Dollar terms can be very large, the logarithmic scale helps to ‘normalise’ it a little.
The first thing we would like to point out on Bitcoin is that we have a long-term uptrend that, since 20120, has formed two pennants. In early 2017 when the first pennant broke out, Bitcoin put in a (roughly) 4600% rally before topping out just under $20k. This time around, should history repeat itself, a 4600% rally will take Bitcoin to around $500k. This is above our price target of $200k (as illustrated in both the Finweek and in our blog post), although it is absolutely a possibility if crypto-mania hits Main Street again this year. And honestly, we think it will.
We note a strong correlation between Bitcoin and Ethereum, and the four year halving cycle. We also lean on history a little and look at how ETH traded during the last cycle. On the chart below, we’ve marked out the beginning on 2017 and the beginning of 2021. Should our thesis around the Bitcoin halving cycle and its influence over cryptocurrencies in general be correct, we could see history repeating itself and ETH putting in a 10 000% rally.
Looking at the chart we can see that ETH has recently broken out of a rectangular consolidation, retested the break out and has started to move higher very nicely. The real test is going to come in once ETH has another crack at the previous all time high. As was our recommendation with Bitcoin, we think that buying Ethereum once the previous all time high has been broken would be wise. Another encouraging data point is that ETH has managed to trade and hold above its 126 week moving average. We can clearly see that the 126 week moving average was a solid resistance line while ETH was consolidating between late-2018 and mid-2020. Now that 126 week moving average is broken and is very likely to serve as support.
Remember though, cryptocurrencies are volatile, so trade small. The stoploss for a long trade here is below the 126 week moving average, which is well over 50% lower. Nonetheless, Ethereum is our number two pick for which cryptocurrency to buy in 2021.
Ethereum / Bitcoin pair (ETH/BTC)
One of the more popular trading pairs in the cryptocurrency space is ETH/BTC. It makes for an interesting chart as well. We note an inverse head and shoulder pattern with a neckline around 0.037. There is also bullish divergence between the stochastic oscillator and price. Moreover, the last two weekly candles both have nice long tails and have seemingly formed hammer candle formations on a key support level.
The play here would be to wait for the neckline to break and then trade this pair in accordance with technical analysis rules on how to trade inverse head and shoulders patterns (target around 0.057 with a stop loss below 0.025).
Ethereum vs Bitcoin vs Bitwise 10 Crypto Index Fund
Here we are just looking at Bitcoin versus Ethereum to see which one, relative to one another, has been performing better. It is clear that ETH lags behind BTC by a few weeks and also that BTC has outperformed ETH in recent months. Likely because BTC is the grand daddy, so BTC leading ETH is to be expected. This chart does well to illustrate the relationship between the two though, and from a traditional ‘pair trading’ point of view, you could be long ETH and short BTC (i.e. long ETH/BTC). In truth though, we would rather be long both.
The above chart also shows, for reference the Bitwise 10 Crypto Index Fund (in black) which was recently launched. The correlation between BTC is obvious. The BITW fund might also be used as a vehicle for Wall Street to gain access to the cryptocurrency market, so we think that it is most definitely worth keeping an eye on. One additional bonus to BITW is that you can buy it through a traditional (registered) financial services provider.
We have to admit that our knowledge of the altcoins is not as extensive as it is of Bitcoin. Nonetheless, we can look at some charts and apply the rules and principles of technical analysis in other to possibly identify, if any among the altcoins, which cryptocurrencies to buy in 2021.
XRP seems to be heading lower to test a previously significant support level around 0.14. Given the coming excitement and irrationality in the cryptocurrency markets, we think that buying some XRP off the support level could offer a very good risk-reward trade. Be careful though, XRP has been reacting negatively to news around its developers and how the Securities and Exchange Commission in the US see XRP. Perhaps the ‘bad news’ will drive XRP down and offer a great risk-reward entry on the long trade?
DOT does not has a lot of data to work with (which is the case with most of the altcoins), although a significant resistance level at $5.9 seems to have broken. Waiting for the weekly candle close before getting involved here would be our call.
SOL has a nice clean setup. A bull flag long-term price formation with a clear target and stop los. Also, just enough data to generate a buy signal on the stochastic oscillator. Well, the buy signal has not yet been generated, so wait for the stochastic to break above 20 at least. We think that the stochastic buy signal will very likely coincide with the breakout of the bull flag. This really is a decent trade setup.
There are a few things happening on the CVC chart. The first thing we note is that CVC is consolidating inside a clear historic resistance zone. We also note that there could be a flat top triangle in the making (within the resistance zone). Lastly, we note bullish divergence between the stochastic oscillator and price. This is another great trading setup in our view, although patience is required. We must wait for the break out of this resistance zone before getting involved in any long trades.
As a side note, should the resistance zone hold and that flat top triangle formation break lower, CVC could be scrambling for support at 0.025. Make sure that you use and stick to your stop loss.
BitTorrent Token (BTT)
BTT is showing signs of bullish divergence between price and the stochastic oscillator and is also currently holding on key support. For those who can keep very, very tight stop losses, BTT is offering a great risk-reward on a long trade.
There is no setup for us on LTC at the moment. We would like to see that large rectangular consolidation break before we get involved. We must point out though, the short trade back to the bottom of the range is currently offering a massive risk-reward. We’re just not sure how we can short it… and we absolutely and emphatically do not recommend using an OTC derivative to take a short. Rather wait for the consolidation to break higher, or for a reversal from the bottom of the consolidation before taking a long position.
Binance Coin (BNB)
Another good looking setup and strong contender for which cryptocurrency to buy in 2021. BNB has formed a flat top triangle and is on the verge of breaking out. There are two ways to look at this chart. The first is to measure the broadest part of the flat top triangle formation and to project it out as a price target. If we make that projection, we come to a price target of $98.
The second way to look at it is to measure the move into the flat top triangle and to project that as a price target. The almost scary part here is that the move into the long-term pattern was a 50 000% rally. Projecting that out brings us to a price target of $19k. In truth, that seems almost too incredible to be probable, although with the frothing madness of another cryptocurrency bubble on the horizon, it is possible.
We can’t offer much insight on LINK to be honest, although we do note a pennant formation that could trigger a trade once it breaks. Please remember, trade small and keep to your stop losses.
Bitcoin Cash (BCH)
BCH stuck in a range with not setup at present. A long trade could be possible once the consolidation has broken higher, although for now there is nothing to do but patiently wait for a trade signal.
Nice repetitive consolidation breaks as ADA trades higher in ‘steps’. Trend following rules apply here.
Man what a cool movie… oh wait, on no it’s a cryptocurrency with no setup to trade. Wait for the consolidation to break before taking any positions here.
NEO tried its hand a breaking the rectangular consolidation, although that upper resistance level managed to suck it back into the range. The story is not over though. If you traded the breakout here, your stop loss should be in the middle of the range (around $9), so there is no reason to get out yet (unless you traded too big).
Any new positions in NEO should only be taken if it can get and hold above the upper resistance level.
No real clear setup on DASH here for us. You could say that the downtrend has broken and is currently being retested. If you are of that view, that would make DASh a buy. Although the more cautious approach would be to wait for the larger consolidation to break before getting involved.
This cryptocurrency basically started as a meme… and now good old Elon Musk is probably gonna make sure that this little one goes to Mars! I mean, just look at how bullish this chat is. It’s almost as if it’s somehow got a Starship strapped to it..?
In all seriousness though, that is a rounding bottom price formation, and do not underestimate the power of Elon Musk talking this thing up. In fact, this is another pick from us for which cryptocurrency to buy in 2021, because Elon will probably pump this thing just for the memes. And also probably to really trial and test a digital currency, because he a very long-term thinker and Mars is going to need a form of money. Not that we think that ‘Mars money’ will be Dogecoin, probably something that has not been made yet. Nonetheless, watch this… space. We like Dogecoin.
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*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.