Bitcoin has traded in an ever-tightening range for two months, and digital-market analysts say a new wave of coronavirus cases and emergency measures could provoke the largest cryptocurrency by market cap out of the doldrums.
The backdrop is an anemic economy, with the International Monetary Fund projecting last week that global output will shrink 4.9% this year: worse than its April forecast for 3% contraction. Confirmed deaths from the coronavirus passed half a million on Sunday, and authorities from China to the U.S. states of Florida and Texas enacted new restrictions to curb rising caseloads. The World Health Organization has also warned the worst is yet to come.
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Volatility is rising in the U.S. stock market, with the Standard & Poor’s 500 Index still just 10% off the record high reached in February. Yet, bitcoin has been stuck between $8,500 and $10,200 since late April, a remarkably placid stretch given the ongoing tribulations.
For bitcoin traders, it might not be the best time to sneak away for vacation.
“With more uncertainty in the stock market again and a monthly close coming up, we may face increased volatility going into July,” analysts with the cryptocurrency-analysis firm Arcane Research wrote Friday in a report.
Bitcoin’s stretch of calm is evident in price charts focused on a statistical pattern known as Bollinger Bands, which narrow when volatility shrinks. The bandwidth as of Monday had narrowed to 0.09, close to its lowest level in 2020.
CoinDesk Research Director Noelle Acheson noted on Sunday that bitcoin’s shrinking volatility contrasts with the persistent level of price swings in the S&P 500.
Stock traders are struggling to reconcile U.S. Treasury Secretary Steven Mnuchin’s predictions of a “spectacular rebound” later this year with Federal Reserve officials’ warnings that the timing and strength of the recovery are uncertain.
Big cryptocurrency investors including Pantera Capital and Bitwise Asset Management say bitcoin prices could benefit from the next wave of government and central bank stimulus packages, which might be needed to prevent deeper economic fallout.
Due to its capped supply of 21 million, bitcoin is often touted as a hedge against inflation, similar to gold.
U.S. President Donald Trump, who is fading in the polls as the November elections approach, has reportedly told aides that he favors sending Americans another round of stimulus checks.
And the Federal Reserve saidMonday it would start buying bonds directly from the companies that issue them, effectively becoming the lender of last resort to big corporations; historically, such emergency lending was restricted to financial institutions.
“The Fed is buying everything that isn’t nailed down,” the cryptocurrency investment firm Arca wrote Monday in a weekly newsletter. “Naturally, even the most bullish investors remain somewhat cautious with regard to when all of this unwinds.”
Based on one popular investment model, known as the “stock-to-flow ratio,” bitcoin could rise to $115,000 by August 2021, according to Pantera. On Monday, the cryptocurrency changed hands at $9,151.
The “tsunami of money will have a large impact,” Pantera wrote last week in a monthly newsletter. “If there are trillions more paper dollars, the law of supply and demand implies much more paper money to buy the same amount of cryptocurrency.”
Matthew Hougan, global head of research at Bitwise, wrote in a monthly investor letter on June 15 that bitcoin could reach $50,000 if its market capitalization reached just 10% of gold’s roughly $9 trillion.
“It’s a matter of when, not if,” Hougan told First Mover in a follow-up email.
Analysts with the digital-asset research firm Delphi Digital wrote Friday that “we’re rapidly approaching a key inflection point as policymakers debate if and when to deploy their next wave of relief measures.”
“One could argue the broader macro backdrop has never been more favorable for bitcoin,” according to Delphi.
Anything to break up the monotony.
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BTC: Price: $9,156 (BPI) | 24-Hr High: $9,224 | 24-Hr Low: $9,032
Trend: Bitcoin’s price bounce from the weekend low of $8,830 could well be short-lived, price-volume analysis indicates.
The leading cryptocurrency by market value is currently trading near $9,150, representing a 3% decline on a month-to-date basis. Prices clocked a high of $9,233 early Tuesday.
The recovery from sub-$9,000 saved the day for the bulls. After all, acceptance under that level would have marked a downside break of the multi-week long trading range of $9,000 to $10,000 and could have fuelled steeper price declines.
However, the relief could be temporary as the uptick from $8,830 to $9,233 is accompanied by a drop in trading volumes, as seen on the hourly chart. A low-volume bounce is often short-lived.
Also, the price rise seen over the past two days has taken the shape of a bear flag, a bearish continuation pattern. A break below the lower end of the flag, currently at $9,100, if confirmed, would create room for a sell-off to $8,150 (target as per the measured move method).
The bearish pattern would be invalidated if prices rise above the hourly chart resistance at $9,344. That would shift the focus to the highs of $9,800 seen last week.