Market News & Analysis
A forest though the trees - Bitcoin
Tony Sycamore August 9, 2019 11:52 AM
Despite the recent uptick in volatility, if we step back to allow ourselves a chance to see the forest from the trees, there is a handful of trades which stand out. Bitcoin has been one of our favourite trades in 2019 and remains so for the macro and technical reasons outlined below.
Following last weeks unexpected escalation in the U.S. – China trade war traditional safe haven assets such as gold, bonds and currencies such as the JPY, CHF have become increasingly sought after.
Highlighting the extremes to which many investors are turning, according to research by JP Morgan, negative-yielding debt stock reached an all-time high last week of U.S. $13.2 trillion dollars. In short, this means the buyers of negative-yielding bonds are paying the sellers to keep their money safe. Bitcoin offers an alternative.
This week there has been a lot of discussion around the Chinese currency, the Yuan after it broke above the key 7.00 level. Careful not to lose sight of the paradigm shift this symbolises, the recent move in USDCNY from 6.90 to 7.05 represents only a 2% move.
If Chinese authorities wish to manage the Yuan 10% lower, it projects a move towards the 7.40/7.50 area. Possibly it could fall further, towards the 8.1000 level where USDCNY spent over a decade, up until 2005. This would prompt large capital outflows. Bitcoin offers an alternative.
However, it’s not only Chinese citizens facing the prospect of depreciating fiat currencies. Central banks around the world are slashing interest rates to revive economic growth. Rate cuts usually result in a lower domestic currency. For an example of this, look no further than the fall in the NZDUSD this week.
Obstructing the currency pressure release valve, the U.S. administration would also prefer a weaker currency. In a series of tweets overnight President Donald Trump called for the Federal Reserve to take steps to weaken the U.S. dollar "As your President, one would think that I would be thrilled with our very strong dollar. I am not!" Bitcoin offers an alternative.
After rebounding from the $9k buy zone highlighted in our articles in July, we remain bullish and long Bitcoin. While we have taken the opportunity to take some profit on the bounce to $12k, I remain core long, looking for the current rally to extend towards 15/17k. The profit stop loss is placed at $10.7k.
Source Tradingview. The figures stated are as of the 9th of August 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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