Bitcoin finishes 2021 with record volume and heavy volatility

Bitcoin finishes 2021 with record volume and heavy volatility

This year marked fresh new highs for the entire crypto market with Bitcoin volume reaching record levels and painting its third consecutive bullish candle.

Its often said when investing, if you are in doubt, zoom out. Despite heavy volatility in 2021, Bitcoin on the 1 year time frame is forming a healthy uptrend.

As New Year celebrations ring out across the world, Bitcoin officially closed out the year at 00:00 UTC time. Here is what the freshly minted candle for 2021 tells us:

Price Action

Crypto has a reputation for extreme volatility, and 2021 will no doubt help re-enforce that narrative. The entire Bitcoin trading range from year-low to year-high came in around $27,500 to $69,000; or a move of nearly 150%.

Measuring the yearly price action from candle-open to candle-close, Bitcoin registered a year-to-date gain of 60%. Price was trading around $28,900 at this time last year, eventually closing out near its current price of $46,200.

When viewing the Bitcoin chart on linear scale, the candle for 2021 has a noticeable rejection of about 50% from close to high. This is a result of the bearish price action experienced at the later part of the year when Bitcoin failed to break its prior highs.

Relative to 2017, however, a rejection of 50% does not deviate too far from history. The biggest yearly wick was 2019, a notorious year for price action, measuring in at an 86% rejection. Visually speaking, the difference looks worse this year because of the linear scale.

VWAP

In 2020, Bitcoin experienced one of the highest volume days in its history when COVID-19 sent its first shock-waves across the world. Volume at the end of that year registered levels never seen for Bitcoin in the past.

Despite this unprecedented event, the uptrend continued, and volume levels in 2021 registered even higher than the year before as COVID numbers across the world continue to rise. New cases are still reaching all time highs after multiple variants of the virus have been detected in nearly every country.

This could be partially responsible for the bull volume that has been increasing big time over the past three years. The volume weighted average price for Bitcoin at the 2021 yearly close was $46,200.

The volume-weighted average price (VWAP) is a measurement that shows the average price of a security, adjusted for its volume. Its often used by traders as a reliable indicator for fair value.

8-Year EMA

The incredible amount of growth Bitcoin has seen over the past two years has pushed VWAP over 140% away from the 8 period exponential moving average, which could be argued as an unsustainable level without some form of correction back to the mean.

While price is considerably far from the average, a huge correction might not be imminent just yet. If price were to make such a correction, it would first need to break the 2021 yearly low of $27,500. The alternative is extended volatile action to give the averages ample time for catching up to the market.

2022 predictions

Nobody knows for certain what to expect for the price of Bitcoin in 2022 but we can look to the charts for speculation. A 30-50% retrace from the yearly close in the early part of the year is possible but it would not break market structure or the yearly uptrend. A retest of the 2021 highs around $69,000 is also possible later in the year, with price ultimately closing off 2022 with a healthy green candle.

The bear case for next year would be closing out with a nasty rejection late in the year, resulting in a shooting star doji or similar candle pattern for 2022. This could make the case for sustained bear action, spanning a year or more before the decades long uptrend can continue.

If one thing is for certain, its that Bitcoin will become more scarce, thanks to its deflationary nature. As governments continue to increase fiat supplies through unsustainable monetary policy, the exchange rate of Bitcoin against fiat currencies will most likely increase along with demand.

Bitcoin finishes 2021 with record volume and heavy volatility
Bitcoin 12M Chart after 2021 close. Click to enlarge.