The Roar Of Bitcoin or its crash?

The perfect storm is coming — Market analysis of the global economic instability.

Bitcoin trades near $11,700 at the writing time on August 6th. It has seen a significant bullish move this week, up 23% from around $9,500 of July 28th (coinmarketcap.com). Over the past 24 hours, Bitcoin has continued to grow, and its price increased by 9.36% at writing time in the last 24 hours. The new price uptrend started on August 1st with an increase in trading volumes by 31%. On August 5th, the market cap is about 209B. On August 1st, the market cap registered was 185B with an increase of 13%. The current technical indicators show Bitcoin is well-positioned to grow further in the long term.

Source: Shutterstock

As Bitcoin reversed from the double bottom ($9,100) and the inversed double top pattern has been completed its target at $11,700/$11,800. Now a flag/an ascending triangle could be formed, and in case of a breakout, we could assist to a new parabolic momentum up to hit $14,000/$15,000 based on Elliot wave theory mainly. At the writing time the price is above the 50 MA, and the ascending trendline started on April at about $4000. Moreover, there is another critical signal for a new uptrend that is the positive double and triple crossover of averages. Indeed, the fast mobile average crosses the medium and long mobile average from the bottom to the top and that it means that BTC is in its uptrend and can spike up again. As said, potentially, we could assist to a strong parabolic pattern if the price crosses the new resistance of $11,800/$12,000. Only in that case, we can confirm that bulls will take the reins again. In that case, we can predict a new target price of $14,000/$15,000 very soon. Of course an high volatility and strong corrections are possible in the coming days since the psychologic resistance of $12,000 has not yet broken and the price could fall again.

What is the reason for this spectacular rally and bullish momentum?

In my opinion, there are a few potential factors that could empower the increase of Bitcoin’s market price in the coming months. The most important is the global and financial instability. It does not mean that it will make Bitcoin bullish. Investors could also start to consider Bitcoin as any other asset subject to uncertainty and price could fall as well crypto exchanges can be considered ‘stock markets’. In this case the price will drop as can can happen in the financial markets.

Let’s consider for now Bitcoin a sort of fascinating ‘safe haven’, instead an alternative risky asset as I tend to consider at this time (even if it is premature to define it in such way).

Following this assumption, we could argue that a price increase can happen as a consequence not only of the recent events happened in the trade war between USA and China, but, above all, for the most important sentiments about potential recessions or economic instability as reported by important central banks that were recently obliged to do a step back in their yearly plans, renouncing to raise interest rates and vary the monetary policies, and announcing new stimulus.

Central banks like Fed, ECB, BOJ, PBOC, are now preparing market participants for more rate cuts and liquidity incentives, as they are worried about the global or local economic outlook, pushing governments to adopt fiscal policies to support their economies and these monetary policies.

Trump China Tariffs

With regard to the tariffs war, we saw as the yuan fell to its weakest price since ten years. It now takes 7.0507 yuan to buy a dollar.

The fallout was because China attacked the United States on the foreign exchange markets against Donald Trump’s threat of a new 10% rate on $ 300 billion of Chinese goods starting from September 1st. President Trump, indeed, has repeatedly complained that China hasn’t made the ‘large quantities’ of agricultural purchases as promised during the G-20 summit in Osaka. After this news, the Chinese central bank allowed its currency to fall below $ 7, spreading out the fear of similar potential devaluations around the globe. According to Bloomberg, indeed, the Chinese government has asked its state-owned enterprises to suspend imports of U.S. agricultural products and China’s state-run agricultural firms have now stopped buying American farm goods.

Reading President Trump thoughts on his twitter account, I can say that the global economic instability and uncertainty will continue in the coming months. My feeling is that the politicians are turning their countries to a very old protectionism instead to find new way to collaborate. Indeed, the States are now more concentrated on international trade rather than mutualism mechanism to face the global economy or other important topics like the environmental.

Why?

Can the global economic growth be infinitive and forever?

That’s why I think that we will see an escalation of tensions between the President of United Stated and Beijing since he continue to express several critics against the monetary policy of Beijing, accusing China to manipulate the currency to get competitive advantages on the international trade.

At writing time, President Donald Trump has just tweeted as follow.

#raffelini

On Friday, indexes S&P 500 and the Nasdaq had the worst weekly performance of 2019 despite the U.S. Federal Reserve cut interest rates for the first time in a decade. But the storm has continued today in the worldwide stock markets.

According to data provided by investing.com, the Dow closed down 2.9%. The S&P dropped nearly 3.0%, and the Nasdaq 100 index fell about 3.6%. The percentage of losses were the worst for the major indexes this year. However, despite the turmoil, the Dow is up 10.3% in 2019, with the S&P 500 up 13.5% and the Nasdaq up 16.4%. In Europe and around the globe markets finished sharply lower today (Source CNN business): London’s FTSE 100 is off 2.47%, and France’s CAC 40 is lower by 2.19%, German’s DAX -1.80%, Italian index FTSE MIB — 1.30% and Swiss market index — 2.08 and Euronext 100 is lower by 2.42%. Also in Asia and in South America, we are assisting to a general selling off, and all index fell: Hang Seng (Honk Kong) -2.85%, Shanghai Composite -1.62%, Nikkei (Japan) -1.74%, Mexina Bolsa -1.99% and Brazil Bovespa — 1.99%.

Although, this stock market’s performance is related to the China trade war and the fear of the yuan devaluation, however, I think there will be much more in the coming days. The global economic current scenario is dominated by uncertainty in the U.S., Europe and Asia. For example, in the United States, the economy is stubbornly growing at a less-than-3% annual rate, to the frustration of the White House, which touted its big 2017–18 tax bill as guaranteeing faster growth.

Regarding Europe, there are several worries that European economic area is slowing due with potential idiosyncratic shocks as President of ECB Mario Draghi stated during the Press Conference.

On July 25th in Frankfurt (Germany). Mr. Draghi confirmed to keep the key ECB interest rates unchanged. He declared that ‘we expect them to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to our aim over the medium term.’ In particular, he pointed out as the risks surrounding the euro area growth outlook remain tilted to the downside, reflecting the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets. In my opinion, Mr. Draghi, indeed, highlighted the core of the potential risk in Europe connected to idiosyncratic shocks in the euro-area due to the weakness of some European countries. In a sense, he confirmed the failure of effective European mechanisms of fiscal policies and mutualism between the member states. During the conference he often stressed the concept that, in his opinion, monetary policy has done a lot to support the euro area and it will continue to do but if the Eurozone continues with this deteriorating outlook, fiscal policy will become very important in the business cycle that is very low since euro area real GDP increased by 0.4%, quarter on quarter, in the first quarter of 2019. On other words, the Eurozone can’t grow as we could expect. Besides, there is the Brexit ‘ no deal’ since Boris Johnson has no intention of renegotiating Brexit deal.

The negative global outlook forced central Banks to revise their forecasts and suggested to prepare a new stimulus to the economy accordingly. While Mr. Draghi decided not to change the ECB monetary policy, the US Federal Reserve has just cut interest rates for the first time in more than a decade, cutting its key benchmark interest rate by a quarter of a percentage point, to a range of 2%-2.25%, in the first reduction in borrowing costs since immediately after the financial crisis a decade ago.

Of course, the consequence of this negative global economic scenario is that investors are looking safe-haven assets refusing riskier equities. That’s why some government bonds are demanded by investors. The 10-year Treasury yield fell to 1.735% from Friday’s 1.855%. As a result, yields on government debt have plunged across the world, and for example, all of Germany’s sovereign debt is yielding negative returns for the first time. Gold, of course, raised its value in the futures market (+1.3% to $1,476.50), since its intrinsic nature of store of value, represents a consolidated safe haven such as a few currencies in the foreign exchange market (such as the Japanese yen and Swiss franc against the U.S. dollar).

The Roar of Bitcoin

Besides the said historic safe assets such as gold, Treasury bonds, and a few international safe currencies, today, it is true that a few digital assets such as Bitcoin, can become a sort of safe havens too. Although, I think is premature to say if Bitcoin can be a safe haven or not, however some evidences seem to confirm it. Besides the growth of the last days, there technical reasons related to the nature of the cryptography and Blockchain that make Bitcoin secured.

Regarding the market price, although nobody knows, of course, the price that Bitcoin can hit in the coming months, however, it’s probable that it could be empowered or influenced (positively or negatively) by the current economic instability. Of course we need to wait and confirm if a correlation exist between Bitcoin and the fall of the economy, before really considering it such as a safe haven but some reasons could support this intrinsic nature of Bitcoin.

In the beginning my personal approach about Bitcoin valuation, was that Bitcoin’s value was determined entirely by market expectations based on its functionalities that are expressed or included by its potential future adoption in the economy as a global digital currency built on a global network of payment decentralized with a clear and secured set of rules. The truth, indeed, despite several critics, is that Bitcoin could perfectly be working as a new global digital decentralized currency created by the market by itself.

Today speculation reasons and lack of standard regulations have transformed Bitcoin in an alternative native digital asset mainly uncorrelated with other financial assets or markets and potentially only with gold in some way. It is considered more as digital gold rather than a global digital decentralized currency and medium of exchange.

Well, whether you consider Bitcoin as a potential future currency to serve as a medium of exchange and payment, and also comparable for its intrinsic characteristics to other safe currencies in the international foreign market, or you think it as the new digital gold, although it is highly volatile and a uncorrelated asset, it does not really matter at this time. If you trade Bitcoin, of course you pay attention to the pricing and technical patterns.

Looking at the scenario analysed above, I plotted a ‘long term’ pattern that could be formed between this year and the next one.

The pattern considers the said negative global economic scenario, included potential economic recessions in some countries or stock market sell off. Indeed, I feel that if Bitcoin’s price will be empowered from a global potential economic recession and a general geopolitical uncertainty of the coming months.

I called the new pattern below, ‘the roar of Bitcoin.’ The scenario assume that investor continue to believe in Bitcoin as new currency, store of value or safe-haven. If the roar comes, we will see something never happened before and any scenario read in the Bitcoin’s narrative could be possible. Although this uptrend could rapresent an opportunity to buy, you must consider that in the short term, the price will probably decline, because the historic high volatility of Bitcoin for speculation reason mainly.

I tweeted in June:

Finally, as said, in my opinion, the trade war and the economic instability will affect the Bitcoin’s price in the coming days. That will happen together with other negative factors, such as the lack of regulations and the war started by the financial and fiscal monetary policymakers against cryptos.

All the above elements, can generate such as ‘perfect storm,’ able to transfer also a part of global monetary deposits belonging to individuals around the world to more safe assets, included Bitcoin. According to my scenario, the crypto market cap could double if this capital flows happen.

Here below I plotted the pattern that, of course, represents a possible fascinating scenario between 2019–2020 that can only happen if Bitcoin will continue to hold its ascending trendline and continue its current accumulation phase. Finally, if the world will consider Bitcoin an ‘effective alternative safe asset or currency’

If it does not happen, Bitcoin will drop again. In this case, it could start a new strong bearish pattern with the bottom about $9,000.

The Pattern

If the ascending trend line resists, we can plot what I called ‘the roar of Bitcoin’. If the ‘Roar’ happens, nothing will be impossible and we will see something totally new in the financial markets. Of course, this scenario is based on the information up to date and it can vary in the short term following different patterns as explained.

In particular the scenario, based on Elliot wave theory also assumes that investor will continue to believe in Bitcoin as store of value or safe-haven.

Although this uptrend could rapresent an opportunity to buy, you must also consider that in the short time, the price will probably decline since the historic high volatility of Bitcoin due to speculative reasons mainly.

For this reason I support the strategy to stay long on Bitcoin if the price holds above the trend line and the longer Moving Average. Of course it depends where you opened your position. String corrections in the meantime could happen with possible targets below $10,000 up to $9,000.

Finally, I’m very intrigued to understand if Bitcoin will be considered really a safe-haven by investors or just a currency If it happens, confirming a sort of intrinsic value, Bitcoin’s price will grow, otherwise we will see to a new winter and bearish phase that could bring also to its crash and a new bubble.

THE NEW PATTERN:

The Roar of Bitcoin

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This article is the property of Alessandro Raffelini and may not be used without his express written permission. This is article represents the opinions of the Author. These opinions expressed do not constitute an investment prospectus or an offer of securities or an investment solicitation in general in the financial market of cryptocurrencies.

Alessandro Raffelini is a strategist and a corporate finance Advisor to Private Equity, Familiy Offices, Venture Capital (London). He is a Blockchain and crypto analyst. Feel free to contact Alessandro on Twitter, Medium, LinkedIn.

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