Bitcoin
Three key reasons Dow plunge won’t cause a bigger Bitcoin drop below $10K
The United States stock market plunged as the Dow Jones Industrial Average (DJIA) dropped 358 points in pre-market trading. The Bitcoin (BTC) price dropped to as low as $10,374 across major exchanges, but a larger pullback is unlikely.
The one-hour Bitcoin price chart. Source: TradingView.com
Three key reasons could buoy the near-term sentiment of Bitcoin. The potential catalysts are the likelihood of a stimulus package, BTC’s strong technical reaction, and the resilient $10,5000 support level.
A stimulus package is becoming more likely as a result
Throughout the past month, the Dow Jones has struggled to recover amid the resurgence of COVID-19 cases.
Various macro and political factors, including U.S.–China relations and the stimulus stalemate, added significant pressure on the Dow.
Since the Sept. 2 peak, the Dow has dropped 4.4%, according to Google Finance. Tech-heavy indices, like the S&P 500 and the Nasdaq Composite, posted larger losses of around 5.6%.
U.S. President Donald Trump’s unexpected positive COVID-19 test further rattled markets. The Bitcoin price dropped in tandem with the Dow in the past 12 hours after President Trump tweeted:
Tonight, @FLOTUS and I tested positive for COVID-19. We will begin our quarantine and recovery process immediately. We will get through this TOGETHER!
— Donald J. Trump (@realDonaldTrump) October 2, 2020
Although the news initially caused the markets to drop, it could cause the Republicans to reconsider the stimulus proposal.
On Oct. 1, the House Democrats officially approved a $2.2 trillion stimulus bill, including direct stimulus checks. The Trump administration and Republicans rejected it, stating that there many unnecessary elements in the deal.
But as the presidential election nears and the markets slump, it could cause the Trump administration to work towards the stimulus. When a stimulus gets approved, it will likely cause Bitcoin and the Dow to soar, potentially buoying BTC’s momentum.
Bitcoin sees strong technical rection
Bitcoin dropped to around $10,380 on Coinbase when the Dow plunged by over 300 points in the pre-market trading session.
Since then, Bitcoin has seen a relatively strong recovery. BTC saw wicks below $10,400 on lower time frame charts but rebounded swiftly above it. BTC is now consolidating under $10,500, which has acted as a critical support level since early August.
A pseudonymous trader known as “Benjamin Blunts” said BTC is more correlated to stocks than gold. Considering the strengthening correlation, if stocks rebound after the initial market reaction, it could relieve some pressure from Bitcoin. The trader said:
“I think, once and for all we can all agree that #btc is not correlated to gold and is correlated to equities, no chopping and changing whenever it suits our bias, this is how it is now.”
Realized correlation between Bitcoin and gold. Source: Skew
The critical $10,500 support level
In the past two months, when Bitcoin consolidated just under a critical support level, it historically broke out.
$10,500 is an important level that might decide whether Bitcoin moves towards the $11,100 to $11,300 resistance range or the $9,600 CME gap in the near term.
Traders also suggest that the charges against BitMEX could turn out to be a non-event in the longer term. Cantering Clark, a cryptocurrency trader, wrote:
“In terms of order flow, while open interest took a beating on Mex for $BTC, I am not seeing much of a disparity between other exchanges LTF volume data and Mex. Pretty much still at parity for what the norms have been. Is this going to be a non-event?”
The confluence of analysts anticipating the BitMEX incident to have a lesser impact on Bitcoin in the near term and BTC recovering to the $10,500 support area maintains an optimistic medium-term outlook for BTC.
Bitcoin has had an explosive breakout year as a maturing financial asset,. The cryptocurrency is finally being considered by institutional investors for the first time, during a year that will go down in history for unprecedented money printing.
The asset’s hardcoded digital scarcity is a primary driver of its boom and bust cycles, and in the year following each block reward halving, magic happens. With the new year right around the corner, here’s a look back at past crypto market cycles for a glimpse at what to expect from Bitcoin in 2021.
Looking Back At Historical Bitcoin Market Cycles
All markets are cyclical and go through distinct phases of bear and bull trends. These cycles can take place over the course of decades, or a handful of years. In crypto, cycles often move faster than traditional assets due to the always-on, 24/7 market.
But because Bitcoin is just over a decade old, there are only a couple of boom and bust cycles at which to glean any useable data. In technical terms, when Bitcoin breaks its former all-time high, the new bull market is on.
Fundamentally, this occurs every four years following the asset’s block reward halving. This built-in mechanism slashes the supply of BTC in half at a time when demand is beginning to resume.
RELATED READING | NY TIMES BESTSELLING AUTHOR: BITCOIN S2F IS FLAWED, NOT MATHEMATICALLY SOUND
The combined effect of suddenly diminished supply and growing demand throws buying and selling equilibrium so out of balance that price appreciates exponentially.
2020 has acted as the ideal example of the impact each halving can have on the market. Bitcoin went from “a fad” to full-blown FOMO in less than nine months, all because supply and demand is so favorable to positive ROI.
And while 2020 was definitely a breakout year for a bullish Bitcoin, it is next year that will make a new wave of Bitcoin billionaires.
Halving years are marked in blue. In the year following, the cryptocurrency goes full parabolic | Source: BLX on TradingView.com
Move Over 2020, Why 2021 Will Be The Cryptocurrency’s Best Year Yet
Glancing at the chart above and it’s shocking to see just how high Bitcoin has climbed in twelve years. During the twelve years of trading, the cryptocurrency has had three distinct halvings, cutting the reward miners receive from 50 to 25 BTC, then from 25 to 12.5 BTC, to the current 6.25 BTC.
Each time this happens, demand begins to so drastically outweigh the limited supply, the asset goes parabolic and rises exponentially.
RELATED READING | BITCOIN BULL RUN IS OFFICIAL ACCORDING TO MONTHLY RSI, MORE BULLISH THAN 2017
In the two post-halving years on record, the first resulted in well over 6,000% ROI and the second just under 2,000% ROI. What could 2021 bring crypto investors?
Another 2,000-6,000% return isn’t likely simply due to the law of diminishing returns, however, even a 400% increase from current levels would result in a price of $125,000 per BTC.
Featured image from Deposit Photos, Charts from TradingView.com
A downside correction in the Bitcoin market at the beginning of this week may prepare a fresh run-up towards $30,000, says Teddy Cleps.
The independent market analyst tweeted a technically bullish set up on Monday, projecting the Bitcoin price in a trend continuation pattern. In the chart, traders can observe the cryptocurrency consolidating inside a Triangle-like structure following its parabolic upside move above $28,000 on Sunday.
Bitcoin bull run setup, as presented by Teddy Cleps. Source: BTCUSD on TradingView.com
It appears like a potential Bullish Pennant, which could technically send the Bitcoin price higher by as much as the rally that preceded its formation — aka “flagpole.” It is around $3,652 long, as measured by Bitcoinist. Therefore, the bitcoin price has a great potential of hitting $30,000 should it break the Pennant to the upside from its apex.
“The rejection from $28,000 was just telling us where the next triangle started,” said Mr. Cleps. “Let it consolidate, let it reach an apex, let it break out, and then show us the way to $30,000.”
Fundamentals
The bullish analogy surfaced as Bitcoin achieves one record high after another. The cryptocurrency reached a new one of $28,387 on Sunday as traditional markets remained close for the Christmas holiday. Meanwhile, the aggregated open interest of Bitcoin Futures hit another record level of $8.9 billion, further reflecting the market’s enthusiasm.
Bitcoin Futures aggregated open interest across all exchanges. Source: Skew
Robbie Liu, a researcher at OKEx cryptocurrency exchange, noted that Bitcoin expects to sustain its profits on booming institutional adoption. Typically, the leading crypto corrects lower after a rally as traders’ focus shifts on its rivals, causing a so-called “altcoin rally,” which is no longer the case.
Mr. Liu referred to Donald Trump’s decision to sign a bill that would pave the way for a $900 billion stimulus package to reach millions of Americans. Coupled with the Federal Reserve’s dovish policies, it would increase further downside pressure on the US dollar. The greenback is already down by more than 12 percent YTD.
“The three major U.S. stock indexes rose for the second day in a row before the Christmas holiday,” said Mr. Liu. “Meanwhile, stock index futures saw gains today after President Trump signed a new $900 billion stimulus package, and we can expect some of that sentiment to boost Bitcoin.”
Warnings for Bitcoin Bulls
As the bullish euphoria sustains, some analysts have also suggested traders prepare for a short-term downside correction — that could invalidate the Bullish Pennant setup above.
Mark Principato, the executive director at Green Bridge Investing, stated that Bitcoin’s current upside moves “are a sign of speculative froth and the herd mentality.” The analyst stated that the cryptocurrency could still fall towards $23,000, where traders can consider opening a long position.
“Please understand, when the market looks its best, that is often the WORST time to enter,” he explained. “Avoid the hype and all of the “logic” and reasoning as to WHY this move is taking place. It will not enforce good habits in the long run.”
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