A new phase in Bitcoins evolution

Proponents of Bitcoin point to its safe-haven qualities and scarcity, as reasons why Bitcoin will eventually replace fiat currencies as a medium of exchange and a store of value.

Crypto 5

A view that has become increasingly popular following the enormous torrent of liquidity unleashed by central banks and governments aimed at supporting economies during the coronavirus pandemic.

For some, Bitcoin and other cryptocurrencies are viewed as a form of digital gold. Others remain sceptical of the entire sector. Somewhere in between are those that are content to buy and sell Bitcoin and other cryptocurrencies as suitable trading opportunities arise.

On that note, as viewed on the chart below, the price action in Bitcoin since the beginning of 2020 has mirrored moves in risky assets such as equities. In March and again last week, Bitcoin was caught in the downdraft caused by a selloff in equities. In between those two periods, Bitcoin enjoyed a strong rally.

A new phase in Bitcoins evolution

As the next chart below shows, during 2017 and 2019 the correlation between risky assets and Bitcoin was non-existent.

A new phase in Bitcoins evolution

In a nutshell, the new tendency for Bitcoin to track movements in risky assets may undermine Bitcoin's safe-haven and “stable store of value” credentials. It may also have implications for Bitcoin demand from a portfolio management/diversification perspective.

From a technical point of view, last week’s sell-off in Bitcoin is viewed as a correction after it completed a 5-wave advance from the March 3850 low to the 12473 high.

In terms of how deep the current correction can retrace, three possible levels jump out. The first is right here, around 10,000, the second is 9,200/000 which comes from the support provided by the 200-day moving average. The third key support level is back towards the 200-week moving average 6600 area.

At this point, the decline from 12473 has unfolded in three waves and there are tentative signs that a base is forming 10,000 area.

Should Bitcoin (and other risk assets) continue to stabilise and be followed by a rally above 10700, it would be an initial indication the uptrend has resumed. Further confirmation would be a sustained break and close above 11200.

A new phase in Bitcoins evolution

Source Tradingview. The figures stated areas of the 8th of September 2020. 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

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.