Bitcoin
Bitcoin on Way for Weekly Loss on Fading Stimulus Hopes
Bitcoin slipped on Friday as it looked sure to close the week at a loss in the remaining three days of trading.
The benchmark cryptocurrency was down $230, or 2 percent, to $11,279 per token by 0456 UTC. It lost 0.7 percent so far in the week. Its downside mood resurfaced as the US dollar surged and hopes of finalizing the second coronavirus deal before the presidential election faded.
The US dollar index was looking to post its first weekly gain in three.
The US Dollar Index is looking more assertive this week on renewed flight t safest haven assets. Source: DXY on TradingView.com
A resumption of stimulus talks earlier this week had prompted the Bitcoin price to grow by up to $1,000. Another fundamental tailwind was institutions that increased their exposure in the cryptocurrency against their long-term inflationary outlook.
But after US Treasury Secretary Stephen Mnuchin proposed to limit the stimulus size to $1.8 trillion, the deal went into another deadlock. The Democrats demanded a $2.3 trillion relief for American households and businesses that suffered losses amid the coronavirus-induced recession.
Exchange FUD
The prospect of lesser dollar liquidity raised its demand among investors. As a result, they got rid of a part of their risky allocations, impacting Bitcoin, stocks, and even gold.
However, Bitcoin fell harder than its traditional peers on Friday. Part of the reason was OKEx, an Asian cryptocurrency exchange, that suspended withdrawals after landing itself into a police investigation.
Bitcoin plunged by $300 after the OKEx news broke out. Source: TradingView.com
The exchange explained that one of its private key holders – those who are responsible for validating capital outflows with an extra set of digital keys – is “currently cooperating with a public security bureau.” That has limited OKEx’s authorization over the clients’ funds. The exchange assured that the capital remains safe and secure nonetheless.
Withdrawals of digital assets/cryptocurrencies @OKEx are currently suspended. Other functions are up and running. Your funds and assets are safe and not affected. Details: https://t.co/vMehdsZs1b
We sincerely apologize for any inconvenience. Further announcements will be made. pic.twitter.com/t14l7z0EUL
— OKEx (@OKEx) October 16, 2020
Colin Wu, a China-based reporter, tweeted that an over-the-counter trader mistakenly received $74.5K worth of Chinese Yuan from a group that the police were hunting for a money laundering case.
“The Chinese government is cracking down on money laundering using cryptocurrency for telecom fraud, and centralized exchanges are in a very dangerous state,” Mr. Wu claimed.
Surprise Bitcoin Plunge
The presence of OKEx around a supposed money laundering investigation panicked traders with low-risk appetites. Bitcoin fell by more than $300 within hours the news went to the wire.
“It is literally lesson #1 in #Crypto school,” asserted Kevin Svenson, an independent market analyst. “Not your keys, not your crypto. Bitcoin begins selling off as a result of the news.”
Nevertheless, some analysts ignored the short-term price shocks over a more optimistic long-term outlook. Crypto Youtuber Lark Davis stated that Bitcoin could still recover to new highs, citing institutions that poured $800 million into its market via spot and shares market (Grayscale).
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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