Bitcoin and Ether Poised for Correction in Q1, But Long-Term Outlook Remains Bullish

Key Takeaways:

Bitcoin logged its first overbought “sell” signal on the weekly bar chart since mid-April.

The signal suggests bitcoin will remain range-bound, at least in the short term.

Despite short- and intermediate-term bearish signals, the long-term outlook for bitcoin remains bullish from a technical perspective.

Ether has flashed an overbought “sell” signal, which comes after a rejection at important resistance.

The “sell” signal has intermediate-term implications, supporting a corrective phase over the next couple of months.

A breakout above the $4000 level would likely result in improved long-term metrics like the monthly MACD.

In 2024, bitcoin outperformed ether by 74%, a trend that can be clearly seen in the bitcoin/ether ratio.

Since early November, relative performance has become more fickle between the two largest cryptocurrencies.

A bullish long-term outlook suggests that Q1 volatility may present an opportunity to add exposure.

After a strong 120% gain in 2024, bitcoin (CRYPTO: BTC) ended the year with a whimper, logging the first overbought “sell” signal on its weekly bar chart since mid-April. The signal comes after a rejection at key resistance in the upper $70000s and suggests that bitcoin will remain range-bound, at least in the short term (roughly 2-6 weeks), as other risk assets (e.g., equities) continue to pull back.

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

Despite the short- and intermediate-term bearish signals, the long-term outlook for bitcoin remains bullish from a technical perspective following the post-election breakout in November. The breakout to new highs marked emergence from a several-month downtrend channel, and it helped long-term momentum indicators like the monthly moving average convergence/divergence (MACD) reaccelerate. Thus, a correction for bitcoin in Q1 should present an opportunity to add exposure ahead of another upleg in bitcoin later in 2025.

Ether: Resistance Near $4000 Is a Hurdle for Early 2025

Like bitcoin, ether (CRYPTO: ETH) has flashed an overbought “sell” signal, which comes after a rejection at important resistance near $4000. The “sell” signal has intermediate-term implications, supporting a corrective phase over the next couple of months. Ether also has initial support at the daily Ichimoku cloud model, near $3226, above which it has stabilized.

We expect a correction in Q1 to lead to a breakdown and test of the 200-day (40-week) moving average. However, our long-term indicators still point higher, albeit less convincingly, compared to bitcoin. A breakout above the $4000 level would likely result in improved long-term metrics like the monthly MACD.

Bitcoin vs. Ether: 2024 Outperformance by Bitcoin Gives Way to Volatility

In 2024, bitcoin outperformed ether by 74%, a trend that can be clearly seen in the bitcoin/ether ratio. Since early November, relative performance has become more fickle between the two largest cryptocurrencies, evidenced by the wide trading range that has taken hold of the ratio.

During a crypto market correction, bitcoin normally outperforms ether since it is usually deemed as “safer.” However, all cryptocurrencies are likely to trade lower in absolute terms when risk assets are undergoing a correction, noting that correlations tend to go up when markets go down.

Nevertheless, a bullish long-term outlook suggests that Q1 volatility may present an opportunity to add exposure with a more favorable risk/reward profile, ideally waiting for the intermediate-term indicators to turn up again.