Bitcoin, BTC, BTC/USD Price Analysis
- Bitcoin is back towards the 10k figure following last week’s failure at resistance.
- Monday marked the third ever Bitcoin ‘halving,’ which means there may be a diminishment in supply coming into Bitcoin markets.
Bitcoin Bumps Back Towards 10k
Last week I had written about Bitcoin for the first time in a very long time. But as the global financial order has become a bit more unsettled, the recent bullish burst in Bitcoin is extremely hard to ignore. And then when Paul Tudor Jones very publicly voiced support on cryptocurrencies, it seemed a logical topic to write about.
At this point – the US Dollar remains in a range and many equity markets are at that uncomfortable push point where the rally from the March lows is starting to look a little stretched; and there may be an opening door for bears to come back in and re-take control of the matter, as I had looked at yesterday. Gold, however, and assets such as Bitcoin may make for more interesting subject matter as one of the few factors that can be isolated and drawn from is the fact that global governments are likely to continue trying to fight the economic slowdowns produced by coronavirus with even more loose monetary policy.
Normally – in an environment of that nature, USD shorts can potentially be attractive and possibly even bullish prognostications for equity markets can seem logical. But the current conditions are far from normal and much will likely be decided upon by the virus itself and just how long it takes for the world to overcome this new, very uncertain risk factor.
But, back to isolation and not the self-isolation that’s been imposed on much of the world, but the isolation of variables in the current economic backdrop. It appears increasingly unlikely that economies will not just return to normal anytime soon. There’s already been a lot of damage and its difficult to imagine that the ‘normal’ we knew in February will still remain for whenever the spread of coronavirus is under control. Current hopes are that we’re now nearing a position where we can slowly move towards that end: But, again, uncertainty reigns supreme as we don’t know if these slight re-openings will hasten the spread of the virus, possibly creating an even larger economic impact.
So if we’re looking for a variable to isolate in the effort of deriving probabilities, the expectation for loose and passive monetary policy seems a fairly attractive candidate to focus on. Central Banks around-the-world have harbored somewhat of a generally dovish tone ever since the global financial collapse, fearing that too much tightening may erode the years of growth brought upon by low rates and loose policy. Some, such as the ECB in Europe, remained in that dovish ‘emergency-like’ posture for most of the time since so when this new risk factor flared, there didn’t seem to be much left in the toolbox to counter those risks (save for the now infamous rate hikes from Trichet in 2011).
The Bitcoin Halving = Potential Supply Pressure
Earlier this week Bitcoin went through its third ever ‘halving,’ (discussed in greater detail by my colleague, Rich Dvorak). This means that bitcoin miners will now receive half of what they would’ve before for ‘mining a block,’ which theoretically creates a supply constraint given that less fresh supply will be coming into the Bitcoin market, all other factors held equal.
The event itself didn’t appear to provide much bullish drive into the cryptocurrency, as BTC remained around a key area of support on the chart. This takes place around the 8500 level is very near the 50% marker of the 2018-2019 major move. That support came into play over the weekend and held through Monday, after which buyers posed another topside push back into that big area of resistance that I had looked at last week.
Bitcoin Four-Hour Price Chart
Chart prepared by James Stanley; Bitcoin on Tradingview
Resistance, at this point, should not be quickly discounted as there’s a number of resistance mediums within a tight space of each other. The 10k psychological level is probably the most obvious, but even outside of that there are Fibonacci levels around 9850 and 9770 that have exhibited some element of sway in recent price action. And above that 10k level is the 2020 and eight-month-high around 10,500.
Bitcoin Daily Price Chart
Chart prepared by James Stanley; Bitcoin on Tradingview
At this point, given the strong pace of gains from the March lows combined with the horizontal zone of resistance built by multiple resistance mechanisms, and there could be a semblance of an ascending triangle formation brewing, marked by higher-lows to go along with horizontal resistance. Such a formation will often be approached with the aim of bullish breakouts, looking for that motivation that’s continued to drive in buyers at higher-lows to, eventually, take over around resistance as price pushes to fresh highs.
The complication here is that that breakout is likely going to need some support on the fundamental side, either through hints towards further easing or stimulus or, perhaps from another jolt of fear.
To learn more about market sentiment, there’s an entire sub-module of content on the topic in the recently revamped DailyFX Education section.
--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX