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.
As the next chart below shows, during 2017 and 2019 the correlation between risky assets and Bitcoin was non-existent.
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 weeks 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.
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
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A new phase in Bitcoins evolution - City Index
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