Today we discuss Bitcoin in August.
TradingShot Chart via Trading View
Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security's price. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.
The expected aggressive break-out finally took place and Bitcoin touched today (even exceeded it marginally) the Higher High trend-line of this Channel Up. It is therefore no surprise that it got rejected as technically this is were most short-term traders would take profits.
Right now we are on a similar situation, with the MACD as said on that April 30 top, rolling downwards. This suggests that if the price makes contact with the 4H MA50 again, it may rebound for one last blow-off top again, this time outside the Channel Up around $12000. In essence we saw the MACD inserting Bitcoin within the Channel Up in May and we may see the MACD pushing Bitcoin outside the Channel Up now.
Always keep in mind though that the greater picture is the following (wider) Channel Up (excluding the LIBRA, COVID anomalies) since the December 2018 Bear Cycle Bottom, and that we are close to starting the aggressive phase of the new Bull Market. So best to do is keep a long-term perspective and accumulate (buy) on every major pull back).
Bitcoin Market Health
Charts via Glassnode Studio
After so many weeks sitting in the bullish zone, we have been anticipating an increase in the BTC price for a while. Now, with today's BTC breakout above $10k, many are questioning whether we are entering the next bull run.
The psychological barrier of $10k is an important one for BTC to have broken, and the fact that it hasn't immediately dropped down into $9K is a positive sign. Given that this barrier has just been broken, it is too early to make definitive statements about whether we will see capitulation or growing confidence at this price - but the early signals are positive.
Lets talk the global climate…US-China tensions are at their worst level in decades. Tensions flared further over the weekend. This was preceded by tit-for-tat consulate closures by China and the US.
“The China hawks in the White House are . . . doing all they can to burn bridges to reach a point of no return in US-China relations to ensure there can be no detente-style backsliding under a potential Biden administration,” said Michael Every, global strategist at Rabobank.
Meanwhile, the US dollar came under pressure on Monday and the dollar index that measures the value of the US dollar against six major currencies including the Euro, pound, and yen, fell to its lowest level since June 2018. In June, leading economist Stephen Roach warned that the US dollar would plunge 35% against other major currencies by the end of 2021.
“Clearly the US dollar is really being questioned very openly. The question is: If you’re negative the dollar what are you positive on?” said Robert Rennie, global head of market strategy at Westpac.
Qi Gao, a currency strategist at Scotiabank sees US-China tensions as weighing heavy on the US dollar and expects the greenback to weaken further in the coming weeks.
Bullish Outlook from Fidelity…getting released this week. “BITCOIN INVESTMENT THESIS” - They too see the Great Wealth transfer occurring A report released by Coldwell Banker in October 2019 shared data around the transfer of $68 trillion in wealth to millennials, estimated to be one of the most substantial transfers of wealth historically. The study also found that there are almost 620,000 millennial millionaires in the United States, about 2% of the population of millionaires in the U.S. The millennial demographic (those born between 1981 to 1996) is more open to novel, digitally native alternatives versus legacy products and services and more comfortable holding new types of investments. This open-mindedness has been shaped in part by the 2008 financial crisis. Entering the workforce at such an inopportune time instilled a level of skepticism towards the traditional banking system. There is also evidence that the millennial demographic’s affinity to hold bitcoin relative to legacy stores of value such as gold is high. According to Nate Geraci, president of investment advisor, ETF Store, anecdotally, about 90% of their millennial clients said they prefer bitcoin to goldxv - “It’s a landslide.” According to a November 2019 Millennials and the Future of Money report by Edelman, 63% of “crypto users” said crypto is a better investment than gold in a volatile economy.
Earlier this week, Bitcoin’s price reached $11,425 and made a new high for 2020. This comes in tandem with a potential second round of fiscal stimulus, with Congress considering a $1 Trillion relief package for individuals and businesses (mainly the latter). This would bring the total amount of fiscal and monetary stimulus to $3.2 Trillion in the US. Investors and speculators see this as a debasement of the Dollar, which is weakening in all aspects.
The Dollar’s value relative to foreign currencies such as the Euro as at a two-year low. The US Dollar Index has fallen nearly 7% in the last 3 months. Goldman Sachs issued a report warning investors of a potential collapse of the US Dollar as the global reserve currency. Goldman writes that we are in “an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to an all-time low.” Goldman went on to state that “[there are] real concerns around the longevity of the U.S. dollar as a reserve currency.” In such an environment, investors seek alternative assets as a hedge against inflation, which could explain why Bitcoin, gold, and silver have soared this week.
Institutions are jumping at the opportunity, as evidenced by record volumes on institutional products such as Bitcoin futures. Open interest (the total value of outstanding trades) is at nearly $5 Billion across all Bitcoin futures markets, which is an indicator of increased investment activity. Daily futures volume is nearly $50 Billion, the second-highest of the year. The CME’s Bitcoin futures nearly had the most volume they’ve seen in a single day, and Bakkt’s futures far surpassed previous record volume. Grayscale is also seeing record inflows, adding nearly $1 Billion in AUM in the last week, with over 80% of it being Bitcoin.
Why it matters:
The current macroeconomic environment is a perfect storm for Bitcoin. The actions that governments and central banks are undertaking right now will have inflationary consequences, which will take a long time to play out. We likely won’t see any real effects in the near future, but Bitcoin’s price is already reacting to these events. If we’re seeing a 20% move in a couple of days because a stimulus bill is being announced, imagine what could happen when we actually see the long-term effects.
The last Bitcoin bull run was led primarily by retail participants— everyday consumers, who were afraid to miss out on a way to make a lot of money in very little time. It was a hype-driven rally. This time seems different, and we’re only at the beginning. Given the increase in institutional interest this year, institutions will play a much bigger role in a rally this time around, and with them comes a lot more money. And what’s more is that this isn’t just driven by hype. This environment, and the actions governments are taking, are exactly what Bitcoin was made to combat.
Keep in mind…the banks getting involved with Bitcoin & Crypto is bullish news. JP Morgan stepping into crypto is a sign of maturity of the overall industry and ecosystem. Custodians are at the heart of institutional crypto adoption. Self-custody can be a difficult process for the less technologically capable. Custodians such as Fidelity Digital Assets layered on offerings such as lending, staking, trading, portfolio management, and tax administration.
Research and analysis of the Bitcoin market tells me…we are in unprecedented times and people are waking up to the incompetence of the FED. Watch for Bitcoin price to increase this month.
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