Equities markets may have just weeks before a major reset, one analyst warns amid claims that institutional Bitcoin interest is faltering.
Bitcoin (BTC) starts a new week with $30,000 reconfirmed as support but also a fresh vote of no confidence from the mainstream.
After a more or less steady weekend, the largest cryptocurrency remains firmly in its established trading corridor: between $30,000 and $40,000. What’s next?
Cointelegraph takes a look at the factors impacting price performance this week.
Stocks face a “spectacular bust” — analyst
Stocks showed clear upward momentum on Monday, led by Hong Kong as a new favorite target for Chinese investors.
Sentiment received a major boost earlier this month after United States President Joe Biden announced a $1.9 trillion coronavirus stimulus package. While already near all-time highs, the cash injection propelled markets still higher.
“Investors see continued open-spigot monetary policy and more fiscal stimulus,” Marc Chandler, chief market strategist at Bannockburn Global Forex, told Bloomberg. “Coupled with the vaccine’s rollout, it will generate a critical mass of more robust economic growth as the year progresses.”
That “open-spigot” money -rinting position is nonetheless cause for concern among both Bitcoin proponents and more critical traditional market players. Last week, Jeremy Grantham, CEO of asset management giant GMO, flatly warned that stocks were in a bubble and that stimulus would only make it worse.
The good times, he warned, could last as little as “a few weeks.”
“We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust,” he predicted in a Bloomberg interview. “When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.”
The impact of such a crash on Bitcoin remains open-ended. Despite its increasing reputation as a noncorrelated safe haven, BTC/USD continues to be influenced by macro factors, in particular the strength of the U.S. dollar. A scenario similar to March 2020’s cross-asset crash also looms large in traders’ memories.
Grantham, meanwhile, was no more upbeat about a post-coronavirus world than the current one.
“You will not make a handsome 10- or 20-year return from U.S. growth stocks,” he said.Bitcoin macro correlation chart. Source: Digital Assets Data
Dollar seen higher in short term
Equities surging ahead, meanwhile, spelled short-term bearishness for the U.S. dollar on Monday.
The U.S. dollar currency index (DXY), which pits the dollar against a basket of major trading partner currencies, came down from recent gains to test support at 90 once again.
In a reversal of last week’s scenario, the dollar is now on the back foot as Bitcoin displays familiar inverse correlation to the DXY and strengthens above $33,000.U.S. dollar currency index (DXY) 1-hour candle chart. Source: TradingView
Incoming U.S. Treasury Secretary Janet Yellen will not be drawn on her plans for the currency, claiming that she wants neither an overly strong dollar nor one which has been as weak as during the Donald Trump administration’s tenure.
“I think this move higher that we’ve seen this week, I think it’s got some legs to it,” Dave Floyd, founder of Aspen Trading, told TD Ameritrade in a bullish short-term prognosis for the DXY.“I think we have more to run; there’ll be some dips along the way, of course — nothing moves up in a straight line — but I think we’re going to see a stronger dollar for the next month or two at the bare minimum, maybe even longer.”
Zooming out, however, analysts believe that the dollar is headed for sustained losses as a result of increasing debt and the economic damage wreaked by the pandemic.
JPMorgan: BTC institutional demand “not strong enough”
Also at risk of suppression is Bitcoin, traditional finance analysts claimed in a familiar bearish take on the largest cryptocurrency.
In a note to investors on Friday, a team at JPMorgan Chase led by Nikolaos Panigirtzoglou warned that declining demand for industry giant Grayscale’s Bitcoin Trust, or GBTC, means that upside is unlikely to return to the market.
“At the moment, the institutional flow impulse behind the Grayscale Bitcoin Trust is not strong enough for Bitcoin to break out above $40,000,” it reads, as quoted by Bloomberg.
Panigirtzoglou and the others pointed to a decline in the GBTC premium — the price of the trust over the Bitcoin spot price — as proof that uptake is slowing after a record few months. Grayscale itself, meanwhile, is busy buying more BTC than ever for its assets under management — Jan. 15 saw its biggest-ever single-day buy-in worth more than $600 million.
JPMorgan, however, is not alone. As Cointelegraph reported, analysts at QCP Capital likewise highlighted “institutional exhaustion” as a key market force at work for Bitcoin under current conditions.
“The near-term balance of risks is still skewed to the downside,” Panigirtzoglou’s note adds.Grayscale Bitcoin holdings vs. BTC/USD chart. Source: CryptoQuant
BTC/USD sees firm bounce at $31,000
After recovering from a brief dip below $30,000 last week, BTC/USD is decidedly nonvolatile heading into the new week’s trading.
The calmer conditions give some welcome respite to traders, who watched as a combination of rumors and selling sparked dramatic price movements prior to the weekend.
“What’s your favourite narrative as to why bitcoin is correcting after going vertical? The answer is in the question,” popular trader filbfilb summarized to Twitter followers on Friday.
With a return to relative stability over the weekend, however, eyes are now focusing on a potential move higher within the trading corridor between $30,000 and $40,000 in which Bitcoin has resided this month after hitting new all-time highs of $42,000.
“Bitcoin saw a very strong reaction at $31k. Bearish scenario invalidated for now. Prob $36k coming, then reassess,” in-house analyst Joseph Young offered on Monday.
Young previously noted that on-chain indicators were slowly shifting to bearish, fuelling already dubious price action without clear direction.
Such a move higher would take BTC/USD to familiar levels, but still without breaking the paradigm that has characterized the pair in recent weeks. BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView
In favor of bulls is a Jan. 29 expiry of $4 billion in Bitcoin options.
Ether clips new all-time high
Bitcoin cooling and ranging after its vertical phase, meanwhile, provides what some consider to be the perfect conditions for an altcoin rally.
Signs that alts were waking up were already present earlier in January, but last week’s volatility in Bitcoin shook out some early gains.
In a return to form this week, however, largest altcoin Ether (ETH) outperformed with a return to all-time highs of $1,475 and daily gains of 7.8%. A breakout versus BTC was also visible.
The move clearly beats other large-cap altcoins, which were flat on Monday.ETH/USD vs. ETH/BTC 1-day candle chart (Bitstamp). Source: TradingView
“At this point and for a while, ETH leads, Alts season follows and bitcoin still explodes higher. Everyone wins,” Raoul Pal, founder of Real Vision, predicted.
Ever the optimist, Pal appealed to Twitter followers not to listen to disparaging narratives about the crypto markets.
“Enjoy and take on board the FUD with a open mind but remember, in an exponential bull market everyone wants to spook you out of your trade. It’s really not easy,” he added.