There is mayhem in the streets of the United States of America following the murder of George Floyd by Minneapolis police officers. This caused protests to erupt into riots creating chaos across the United States adding to the problems on top of the current pandemic that the world is already facing.
At the same time, cryptocurrency markets are looking to be in a very interesting scenario
There are a handful of altcoins that are ready to break out and push higher which might actually result in the makings of Altcoin Season v2.0.
More importantly, Bitcoin actually re-tested the 2020 high of around $10,430 - at the same time that Donald Trump was addressing the nation about the on-going riots.
Bitcoin failed to hold above the $10,000 level and has since dropped back lower as it trades at around $9,700. This drop beneath $10,000 might actually provide the last ever opportunity to buy Bitcoin beneath the $10,000 level.
Correlation with the SPX Starts To Stabilize
One thing that many analysts follow is the correlation of the S&P 500 with Bitcoin. If the stock market is crashing and the two assets are uncorrelated this would mean that Bitcoin would be rising.
Over, the past few months it did look like Bitcoin was starting to become uncorrelated to the US stock market as it started to climb whilst the S&P 500 started to fall. However, in the past few weeks, it seems that the correlations have started to stabilize. You can see this on the following graph;
The graph above shows the price of Bitcoin (orange) and the price of the S&P 500 (red) since the start of 2020. We can see that during the March market collapse that was caused by the Coronavirus pandemic, both assets dropped by around 30%.
However, something interesting then happened.
Bitcoin started to rise much faster than the S&P 500. Bitcoin had actually managed to re-gain all of the losses caused by the Coronavirus pandemic before the end of April 2020. On the other hand, the S&P 500 has only just managed to re-gain all of the Coronavirus losses in June 2020.
Although Bitcoin is now up by a total of 31% since the start of 2020, it does seem that the S&P 500 correlation might be starting to stabilize as the S&P 500 attempts to rebound.
If it is true that the correlation is starting to stabilize, and the S&P 500 starts to rally further, this could actually help Bitocin increase and could make it one of the last times to buy Bitcoin beneath $10k.
Quantitative Easing Might Actually Be Helping Bitcoin
Another reason as to why this might be the chance to buy sub-$10K Bitcoin is the fact that the $6 trillion Quantitative Easing stimulus announced by the Federal Reserve might actually be helping to increase the price of Bitcoin.
In response to the recent economic crisis caused by the pandemic, the Federal Reserve announced a $700 billion bond-buying program and moved to lower the interest rates for borrowing to 0.25% in the hope to incite borrowing and increase consumption.
However, Quantitative Easing comes with its own problems and that includes the devaluation of the currency.
It basically creates a scenario in which investors are pushed into higher-yielding assets as their purchasing power is decreased during QE if they just hold onto their cash. This almost creates a string of asset bubbles in which Bitcoin could be one of the assets that investors turn toward during times where their cash is slowly eroded during QE.
We can certainly see investors being pushed into Bitcoin especially when we consider the fact that legendary investor, Paul Tudor Jones, announced that he would be investing around 1% of his total portfolio into Bitcoin to combat the QE.
In fact, cryptocurrency analyst PlanB, actually thinks that the QE should help to pump Bitcoin. He pointed out that the previous QE in 2013 coincided with the 2013 Bitcoin bull market and poses a question about where Bitcoin will end up during the 2020 QE4.
PlanB actually takes things one step further on his sentiment for a bullish Bitcoin rally. His Stock To Flow model actually takes the scarcity of Bitcoin into account and it suggests that Bitcoin could actually hit $100,000 by the end of 2021.
To understand the Stock To Flow ratio of an asset it easier to look at it for gold. The reason that gold has maintained its monetary role in history is the fact that there is a consistently low rate of supply. This means that it has a high stock to flow ration.
As an example, Gold has an SF of 62. This means that it takes 62 years of production to get the current stock of gold.
His model estimates that the Stock To Flow ration of Bitcoin should overtake the Stock To Flow ratio of Gold by 2022.
PlanB updated his STF chart this month in a Tweet which includes the recent Bitcoin block halving that caused the block reward to be slashed in half from 12.5 BTC per block to 6.25 BTC per block.
It showed that Bitcoin’ stock to flow ratio is now 50 - which means it would take 50 years of production to get to the current supply of Bitcoin. He also estimates that we should probably be hitting around $100,000 per Bitcoin by 2021 and that the SF should overtake gold.
Bitcoin Price Analysis
What Has Been Going On?
Taking a look at the daily chart above we can clearly see that Bitcoin has been trading above a rising trend line formation for the past 3-months of trading. The cryptocurrency has actually bounced off of this rising trend line in both April and May.
As June opened up trading, Bitcoin actually spiked higher to test the $10,430 level which is the 2020 high that was set in February.
This re-test of the 2020 high showed us one thing for Bitcoin - we are still headed higher.
Bitcoin has since dropped fro this 2020 high as it dropped back beneath $10,000 to reach the support at $9,360 (.236 Fib Retracement).
Are We Bullish Or Bearish?
Right now, we are considered to be pretty neutral at this moment in time. In the short term, we can consider Bitcoin to be pretty bullish, however, we really should wait for a break above the 2020 high to really consider a bullish trend that would last until the end of the year. On the other side, if the sellers push Bitcoin beneath the rising trend line this could be a sign that the market might be about to unwind lower.
We would still need to wait for a break beneath $7,000 before being in danger of turning bearish.
Where Can We Go From Here?
In the long term, I estimate that Bitcoin will break this current triangle and push higher as the year progresses.
In the meantime, I suspect that we will continue to remain in this consolidation until we see a breakout toward the upside.
The first level of strong resistance to break lies at the $9,783 level which is provided by a bearish .886 Fibonacci Retracement level. Above this, resistance can be expected at $10,000, $10,287, and $10,430 (2020 high).
Once we close above the 2020 high, resistance will be found at $10,716, $11,000, $11,332, $11,500, and $11,610.
Following this, additional resistance is then found at $12,000 and $12,352.
On the other side of things, if the sellers step in and push Bitcoin beneath the current support at $9,700, added support is then found at $9,362 (.236 Fib Retracement), $9,200, $9,000, $8,800, $8,682 (.382 Fib Retracement), and $8,400 (200-day EMA).
What Are The Technical Indicators Showing?
The RSI is trading directly along the 50 line which shows strong indecision within the market. If we really want to see Bitcoin breaking $10,000 and leaving it behind we would need to see the RSI rising above 50 to indicate that the buying momentum is growing within the market.
All in all, it does seem that once Bitcoin pushes past $10,000 on the next attempt - it might not ever go back beneath it. The cryptocurrency is shaping up to create a nice consolidation pattern and when it breaks with a push above $10,430, it might start a bullish run all the way back toward $20,000.