Bitcoin has been on a tear recently. The asset’s price has surged almost 30 percent since the end of June, moving from $8,905 to over $11,500 as of press time. Considering how well Bitcoin has done, there are several macro factors that are pointing towards a blissful end for the year.
We’re now stepping into the final four months of 2020, and investors would be looking towards counting their gains as the days progress. Macro factors have begun indicating that a medium-term trend will be optimistic, and things could even spill over in the long term for a sustained bull run.
However, there is also a possible momentum fade that could happen in the short term that would lead to a consolidation as time goes on.
Cathie Wood, the chief executive of Ark Invest, explained in a recent podcast episode that there is technically little resistance between the $13,000 and Bitcoin’s all-time high of $20,000. Wood noted that the asset could possibly see a trading range between $10,000 and $13,000 — a phenomenon that would establish a strong phase of consolidation.
“That $13,000 [level] is important because if we were to get through that, then in technical terms, there would be very little resistance and we would probably be on our way back to the peaks we saw in late 2017 — so, around $20,000.”
Of course, it remains uncertain whether Bitcoin will be able to remain in the $10,000 to $13,000 range. In the past three years, the asset has shown a tendency towards consolidating towards September and October. Then, a rally usually happens around the middle of November.
Considering that the block reward halving happened in the middle of the year, there is still a lot of hope for a consolidation to happen towards the end of it.
A Dwindling Dollar
Currently, one of the most significant signs that point to a possible long-term profitability boost for Bitcoin is the reduction in the dollar’s dominance and profitability. In recent months, thanks in no small part to the global pandemic and the struggle for the U.S. to reopen its economy, the dollar has slid against several of the other reserve currencies of the world.
On July 31, an article described the dollar selloff as being “relentless.” Along with the former two pointers, there is also the fact that coronavirus cases continue to surge in the United States, and the country is going through and election that many have been unable to call.
Meltem Demirors, chief strategy officer of CoinShares, shared her belief that this uncertainty and instability for the dollarwill be a boost to Bitcoin. In a piece, she explained
“So where does bitcoin sit in the economic cycle? during periods of economic uncertainty and dollar weakness, #Bitcoin is likely to benefit in the same way as gold. If bitcoin’s financialization continues, it will be unable to remain insulated from the financial system.”
The dollar already dropped to a two-year low. While analysis anticipate that a recovery could happen soon, Bitcoin is still dominating the market.
However, some factors could still point to a dollar drop. For one, interest rates are low, and the country has yet to devise a path towards economic recovery. There is also the fact that the European Union has developed a more sizable stimulus package to deal with the coronavirus. Thus, the euro has now outperformed the dollar in recent weeks.
The fading trend that the dollar is exhibiting coincides with expectations that inflation rates will rise in the coming months. If many begin to consider Bitcoin as a reliable store of value and a hedge against a possible inflation, the asset will see improved adoption — and improved gains.
The markets are currently counting on the Federal Reserve to make significant changes to its fiscal policies as a means of dealing with the inflation rate and stabilizing the market. However, there are pockets of people who believe that things will still go bad for the dollar nonetheless.
The Gold Correlation
Due in most likely terms to the dollar’s slide, Bitcoin and gold have seen some correlations in their price movements over the past few months. According to data from Skew Markets, Bitcoin and gold have managed to rally in similar fashion since the middle of July and have also pulled back similarly in the beginning of August.
There are several reasons why these top alternative assets might be seeing some price similarity. First, there is the fact that institutional activity is growing. Bitcoin has also seen a jump in its public perception as a hedge against inflation and economic uncertainty.
Also, both Bitcoin and gold have shown an inverse relationship with traditional stocks since the beginning of last month.
To be fair, these price similarities don’t necessarily benefit Bitcoin in the immediate future. However, they give a hint that investors might be looking into Bitcoin as a store of value asset than a risk-on investment vehicle like stocks.
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