It’s official: bitcoin bears are in full retreat as the bulls press on the relentless attack.
Bitcoin continues to slowly climb higher in defiance of legacy markets as institutions wake up to the bitcoin trade en masse.
But could these warning signals lend credence to a plausible pullback scenario?
Let’s dig in.
As the macro environment serves as fuel for various stores of value, bitcoin is up more than 55% year-to-date and continues to outpace most assets on the market. This persistent zero-rate environment and quantitative easing will continue to push demand towards higher and higher levels.
Meanwhile, traditional asset management firms are beginning to take the leap to own bitcoin. Such stories often come and go quickly as new information enters our collective consciousness, but they are still no less important. Fidelity investments recently published a paper revealing clear alpha-generating impact bitcoin is having on client portfolios — to the tune of 1%-5%. Stone Ridge, an asset management firm now owns $115 million in bitcoin.
Paul Tudor Jones publicly announced that he put 2% of his assets into bitcoin. Public pension funds in the US have also gained exposure to bitcoin via fund managers. Grayscale, which is the largest digital assets investment firm saw record inflows this year and holds over $6 billion in total assets under management.
The latest additions to this wave of institutional bitcoin frenzy were PayPal last week and DBS yesterday. DBS is the largest bank in South East Asia and just announced that it will offer bitcoin, ethereum, and other cryptocurrency trading pairs and custodial services for the space.
At the same time, the S&P500 and bitcoin appear to have decoupled to an extent. The question is: when will investors ditch their stocks for bitcoin?
Clearly, institutional FOMO has picked up, and it remains to be seen whether the bulk of institutions will wait for bitcoin all-time-highs before jumping in on the action, which they invariably will do.
When OTC desks don’t have enough bitcoin to service institutional bitcoin demand, they’ll turn their attention to the spot market, at which point thousand-dollar increments will be common-place.
Bitcoin is bullish, but as I write this, it appears that volatility has well and truly picked up.
The move the market just witnessed (from $12,700 to $13,800) was all but confirmed as soon as the number one crypto failed to plunge into a bear-market on the 26th of October, when signs of a possible reversal became apparent, as noted in the open Telegram channel.
Indeed, bitcoin held the line at $12,756 — with market participants front-running the $12,500 retracement level by over $200. Such things tend to happen in a raging bull market.
But what’s next for bitcoin?
For context, let’s zoom out into the daily time-frame.
Bitcoin is at a crossroads; it will either postpone continued upside at the $13,800-$14,000 resistance level or it will blast straight through towards $16,000 if certain conditions are met.
Per the above chart, bitcoin has more or less reached the apex of this ascending channel, which means it’s ready to cool-off and head into corrective territory.
The hash ribbons are about to cross bearish on the daily-frame, suggesting neutral or bearish momentum is well within the realm of possibility at this stage.
On the flip side, Bitmex funding remains negative, which means traders are stacking up on shorts at these levels — though not by a large margin. Typically, negative funding rates are counter-indicators for price-action, though these relatively neutral levels paint an opaque picture.
However, if history is a guide, then one could expect upside to continue until futures funding rates flip positive. This scenario suggests exuberant prices that might even push bitcoin to yearly highs this week ($14,000 plus).
A coin flip?
Zooming in on the 4-hour chart, we can clearly observe a triple bearish divergence forming on the Relative Strength Index (RSI) indicator — i.e. — price is moving up while RSI is diverging lower.
As such, there appear to be substantial technical reasons for bitcoin to halt its progress just before the $14,000 level.
However, given the context mentioned earlier, in addition to the clear higher low and higher-high macro situation (apparent since March), then it wouldn’t take much for bitcoin to resume its uptrend, despite this uncertain environment.
Having said that, with the monthly close just around the corner, bulls will have to seize the remaining days in order to set a precedent for continuation in November; a nasty rejection wouldn’t be great just before the October monthly candle closes.
All in all, bitcoin has been through an incredible run and if it enters into a cooling-off phase, then bulls will have another chance to reload before $20,000 is inevitably breached.
Levels to watch:
- Break above $13,800 suggests move to $14,200.
- Sustained weekly close above $14,200 suggests $16,000 is likely.
- Break below $13,000 indicates a bear phase is likely.
Onward bitcoin Spartans.
Bitcoin is trading at $13,250 at the time of publishing.
(28/10/2020 13:00 UTC+1)
Catch you next time.