Portfolios Reviews & Comments - Page 11

The activity of traders in the Ethereum derivatives markets at the end of last week reached a new high as the price of the cryptocurrency rose to more than its annual maximum.

Do not forget that in addition to short-term statistics, there is a significantly greater negative background of the consequences of the first wave of the epidemic and the beginning of the second. Central banks have been actively stimulating economies for a long time, and this effect will positively affect popular indicators of economic health for some time, but this does not mean that the printing press will be able to solve fundamental problems, which means that we will continue to observe increased turbulence in the market, which can positively affect bitcoin.

Bitcoin is an asset that must grow steadily in order to “maintain traction” for the rest of the crypto market. In a sense, the traditional stock market has adopted a similar tactic from the crypto community. As a result, the famous "Buffett indicator" (the total capitalization of all American stocks to the country's GDP) issues a warning. At one time, it worked before the collapse of the dotcoms. When this ratio was above 100%, there was reason to believe that the market was overheated. It is difficult to say how one can find a substitute for GDP for cryptocurrencies. Crypto market participants are more likely to be content with messages about technical updates or partnerships. For example, TRON and Waves' announcement of the ecosystem merger caused the price of Waves to jump 42% per day. In turn, Tron grew "only" by 16%.

I doubt that this year Bitcoin will repeat the rally three years ago and reach $20000. The massive transition of investors to the crypto sphere is held back by the acute volatility of this market. In the near future, we should expect a decline in bitcoin. The number of active bitcoin addresses is declining. These are those wallets that send or receive BTC on a daily basis. The dynamics of the activity of users of the bitcoin network has a strong influence on the value of the coin. If in the near future the number of active addresses in the BTC network does not start to grow, then by the end of August we should expect a tangible decrease in the value of the cryptocurrency.

Over the past seven days, the cryptocurrency market capitalization has grown by almost 1.5%. At the end of this week, we can say that the total capitalization showed a slight increase, in which not only Bitcoin, but also currencies with low capitalization actively participated.

In the US, cryptocurrencies are gradually becoming mainstream. Grayscale Investment, the largest cryptocurrency trust fund, took an unprecedented step by placing Bitcoin ads on American TV. The promo is aimed at promoting investment products in the cryptocurrency field.

Bitcoin is increasingly vulnerable to a potential dollar rebound. The general improvement in the economic situation after the publication of data on employment in the United States is pushing the dollar upwards and may become a negative factor for Bitcoin, as the coin attracted demand from large investors seeking to diversify part of their portfolio at the expense of the largest cryptocurrencies.

Investors should keep a close eye on the gold market and US government bond yields as these factors can affect the price of Bitcoin and Ether.

The strengthening of Bitcoin in 2020 was due to an increase in capital investments in this asset from Asian investors. The recent surge to $ 12,000 was a direct result of the economic instability in the Asian market.

The strengthening of bitcoin is observed against the background of the activation of users of the bitcoin network. According to the BitinfoCharts service, since the beginning of 2020, there has been an increase in the number of addresses making transactions daily. At present, the network processes, on average, up to 350,000 transactions per day. In parallel, there is a trend towards an increase in the number of unique bitcoin addresses.

More and more people are entering the cryptosphere. BTC trading volumes are steadily growing along with computing power (hash rate), which once again proves the strengthening of Bitcoin's position. The behavior of retail investors during a pandemic varies significantly across age groups. Investors are usually interested in alternative assets, but if the older generation buys gold, then the younger generation buys bitcoin. Gold and Bitcoin have attracted significant amounts of assets over the past five months as a result of increased interest in "alternative" currencies.

Investors are looking for profitability. It is this factor that can provide significant support to Bitcoin. The demand for insurance against the devaluation of the dollar pushes up the price of gold, stocks, and pulls up the prices of bitcoin and some altcoins. Recall that since the beginning of the year, bitcoin has grown in price by 64%. Given the extremely unstable situation around the stock market, the actions of central banks, the epidemic, geopolitics, cryptocurrencies have every chance to attract a more significant part of the investor portfolio.

Cryptocurrency is a counterweight to the traditional financial market in all its forms. Of course, bitcoin could not enter the mainstream without the support of money from Wall Street, but they should not become “friends”. Now, both retail and institutional investors are looking for a direction for investment, and the digital currency market could well become such a direction.

A recent analysis put forth by JPMorgan revealed that the younger generations have a high inclination to invest in Bitcoin. The two cohorts show divergence in their preference for alternative currencies. The older cohorts prefer gold while the younger cohorts prefer bitcoin. This trend was highlighted in a recent post from analytics firm Glassnode, in which they explain that over the past five years, the percentage of the BTC supply owned by entities with less than ten BTC has grown by nearly 9%. They also note that the percentage of the supply owned by entities holding between 100 and 100,000 BTC has declined from roughly 63% to 49.9% currently.

With record incentives from central banks and positive dynamics in the stock and precious metals markets, cryptocurrencies are gaining their share of interest.

According to CoinMarketCap, bitcoin's trading volume remains stable at $20 billion per day. The dominance index threatens to fall below 60%, which indicates an outpacing growth in demand for cryptocurrencies compared to Bitcoin.

The situation with possible bitcoin correlations now looks even more confusing. Stock indices have ceased to show synchronous dynamics with bitcoin. At the moment, market participants have again begun to consider the correlation with gold, and even more with silver.

Since the end of March, investors have been buying 50000 bitcoins every month. Based on the data obtained, analysts predict that in the near future one should not expect massive sales on the crypto market. Meanwhile, despite the rise in bitcoin, large speculators on the Chicago Stock Exchange have opened a record net position for the decline in cryptocurrency. Open interest also reached a record level - the sum of all open positions in the market. A lot of relatively small traders have arrived on the market, wishing to participate in the growth of the asset. The number of sellers remained almost unchanged, but they hold much larger downward positions.

I believe that Bitcoin will continue to rally up to $ 15000, and may even go up to $24000. Investments in this assert will increase following the growth of investments in the precious metals market.

Levels above $11000 are highs in more than a year, and appear high enough to neatly take profit. Bitcoin's price high in 2020 has reached $11400, and at the moment the dynamics are similar to the situation with precious metals: in the range from a slight decline to zero. The index of greed and fear is in the "extreme greed" mode, which, according to the idea of ​​the index, indicates an imminent trend reversal, nevertheless, bitcoin may well show growth and being in overbought technical conditions. Formally, a sell signal will be the return of the RSI to the area below 70 against the current 75.

The influx of institutional liquidity towards the Bakkt platform (bitcoin futures with physical delivery of the asset) also helped to push bitcoin to local highs. Bakkt said that the number of contracts increased by 85% on July 28 from the previous high of $11506. However, as salutary as institutional liquidity may seem, it is worth remembering that large investors are not crypto enthusiasts and are only focused on capitalizing on price volatility as much as possible.

Bitcoin's current rally could be longer than the previous. However, the risks of a pullback cannot be ignored, given the recent activation of major players or the so-called “whales”. It is likely that some investors decided to take advantage of the cryptocurrency's multi-month price highs to get out of their positions, perhaps doubting further growth prospects. Usually, the result of such activity is a massive sale of the cryptocurrency and a drop in its value.

To confirm the bullish sentiment, Bitcoin needs to gain a foothold at these levels and grow above $11000. Only this will stop investors from taking profits. However, one should be very careful about the current growth of the crypto market, since none of the global players can guarantee at least any long-term trends.

The balance of bitcoins on exchanges is at a minimum. Investors are withdrawing cryptocurrency from trading platforms, which indicates the transition of players to long-term storage of coins. All these factors signal the continued positive trend in the market. I highlight another factor in the long-term growth of BTC. I believe that occasionally turning on the printing press leads to depreciation of fiat money and forcing investors to switch to alternative instruments such as gold and bitcoin.

Not so long ago, the price dynamics of bitcoin was associated with the dynamics of gold. There has been a recent correlation with the stock market. For a while, Bitcoin did show a synchronous movement with stock indices, but now the situation has begun to change. In recent days, cryptocurrency has managed to maintain growth, while stocks have been declining.

The Greed and Fear Index bounced from Fear last week to Greed as of yesterday. At the end of the working week, it switched to "Neutral", fully reflecting what is happening on the crypto market. There are not enough buyers and sellers in the market to show an increase in price dynamics. At the moment, all participants expect new triggers to appear, and the course has been stuck in a narrow trading range by the standards of a cryptocurrency for more than a month.

The correlation of bitcoin with the stock market has several opposing factors of influence. On the one hand, a solid pricing framework is useful for professional trading. On the other hand, the asset in the basic version has high volatility, and in many respects was able to show such an impressive growth in 2017 precisely due to the lack of understanding by retail investors of the nature of growth. At the moment, the traditional financial market itself may have a similar nature of "inexplicable growth", forming an analogy with bitcoin, absurd in the recent past. In these conditions, everything that can bring the fastest profit is bought out, however, with a high probability, after such a "growth on steroids" a painful period of detoxification begins. Cryptocurrency was the answer to the past financial crisis, but in those days, digital currency had nothing to form a real basis for “poaching” part of the financial flows of the traditional sector. Now the situation may be different, and although Bitcoin was the first, it is likely that it will not shine at all on the ruins of the next financial collapse.

It seems that the majority did recognize and to some extent approve of Bitcoin's deepening correlation with the traditional financial market. The existence of such a peg makes it easier to predict and understand bitcoin, but it goes against the original idea that prompted the creation of the digital currency. Correlations between Bitcoin and the stock market have yet to pass the test of time, as a similar peg to gold breaks periodically.