Crypto Market Analysis: 26th October 2020
In a week where equity markets have stagnated, bitcoin bucked the trend as it pushed through the $12,000 resistance level, as well as touching and seeing some resistance at $13,000. Altcoins were buoyed by bitcoin’s rise, with ethereum, XRP, litecoin and chainlink all showing upward trajectories too.
Simon Peters, analyst, eToro: Bitcoin blasts through $12,000 barrier
Bitcoin price action has dominated attention in the last week, rapidly reaching year to date highs. It approached and then subsequently smashed through the much-feted $12,000 mark with such strong momentum, there is every chance the cryptoasset could just push right on through to $14,000.
If we were to see some pullback towards $12,000, I would urge investors not to be too worried. We may end up in a period of consolidation just above that level. I’ve highlighted many times in these pages that there is still time in 2020 for a bitcoin bull run, and my view remains the same (Will 2020’s Q4 be an autumn of alts, or will they fall? 13th July).
So, what instigated last week’s bullish run? A number of positive developments in the crypto space, most notably PayPal announcing it would enable its users to pay for goods and services in cryptoassets. This would introduce a massive user base to crypto, with PayPal boasting 346m active accounts, all of whom will be able to hold and shop using bitcoin, Bitcoin Cash, Ethereum and Litecoin once the service has been rolled out.
This positive development was compounded by a discussion earlier in the week on the IMF’s Cross Border Payments Panel, in which Federal Reserve chairman Jerome Powell reiterated that a US CBDC continues to be on the radar, whilst also opening the door for private firms to get involved in the endeavour.
These developments are further backed on by positive statistical data. Glassnode’s investor sentiment index is gaining, open interest on bitcoin futures is increasing and short positions are unwinding. The combination of strong fundamentals and positive news for the cryptoasset are providing the rocket-fuel needed for bitcoin’s blast-off.
David Derhy, analyst, eToro: Look to $20,000 instead of back at $12,000
As Simon highlighted, the current run could simply push through all the way to $14,000. If that is the case, then the next level from a technical and fundamental perspective would be $20,000. With the US election coming up next month, further economic stimulus from the government is going to happen even if the size of that stimulus is still up for discussion. I am of the view that we won’t see a drop back down below $12,000 for a while yet.
With the reduced volatility we are seeing, institutional investors are more and more interested in buying bitcoin. Combine this with the host of listed companies also looking to add bitcoin to their balance sheets, and the springboard for bitcoin prices continues to look very positive.
Simon Peters, analyst, eToro: Stimulus fears could stoke the fire for Bitcoin
With the ‘if’ of economic stimulus in the US out of the way, what matters now is the ‘how much’ and the ‘where’. How much money is the US government going to be pumping into the economy? What areas will they target and does that strengthen the use case for bitcoin? As David mentioned, the size is dependent on who wins the election, but any outcome will almost certainly lead to stimulus. If the Fed will be funding this by adding US treasuries to its balance sheets, then this would surely reinforce the argument for bitcoin as an alternative currency. Both sides have also agreed for another stimulus check of $1,200 to every citizen, but the rest will most likely go towards preserving jobs.
If this is the case, then we may also see an uptick of inflation, another important aspect of Satoshi Nakamoto’s view of modern economies that drove him/her/them to create Bitcoin. It will also be interesting to see how this impacts the correlation between bitcoin and equity markets. Both could rally on news of a fiscal stimulus package, but bitcoin could decouple from equity markets based on its own fundamentals. It has recently enjoyed its longest run of decorrelation with the S&P 500 over the past couple of weeks
We’re currently in a world of positive price movement, extensive fiscal stimulus, major central banks discussing digital currencies and a range of altcoins successfully implementing logistical upgrades. It’s an exciting time to be a cryptoasset investor.
This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results.
All contents within this report are for informational purposes only and does not constitute financial advice. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.
Image by Manfred Antranias Zimmer from Pixabay