Bitcoin
Bitcoin Under Pressure as Focus Shifts on Wild Crypto Rivals
Yashu Gola
Bitcoin has every reason to continue its upside rally for the rest of this week, ranging from Tesla’s $1.5 billion investment to Twitter’s consideration of holding it. Nevertheless, the flagship cryptocurrency is going down.
The BTC/USD exchange rate corrected sharply after hitting its record high of $42,000 on Tuesday, pointing to a spike in profit-taking sentiment among daytraders. As of Thursday, the pair was down by more than 8.5 percent from its local top, albeit sustaining its long-term bullish bias.
Its correction largely coincided with a drop in Bitcoin Dominance Index, a metric that calculates Bitcoin’s market share against the entire cryptocurrency market, which includes large-cap digital assets like Ethereum, XRP, Binance Coin, and Cardano. On Tuesday, the index was as high as 64.76 percent. It turned lower to 61.48 percent on Thursday.
Bitcoin Dominance Index drops amid altcoin boom. Source: BTC.D on TradingView.com
The reasons were visible in the altcoin market performance this week. Cardano blockchain’s native token ADA surged by up to 23 percent against Bitcoin. Polkadot’s DOT inched upward similarly by more than 9 percent. Meanwhile, Avalanche’s AVAX jumped into higher ranks by surging more than 118 percent.
Overall, the altcoin market added up to $79.5 billion this week to push the cryptocurrency market valuation above $1.4 trillion. Bitcoin lost about $77 billion from its local top, as calculated from its record high market capitalization of $897.9 billion. That reflects a higher degree of portfolio reshuffling in the cryptocurrency space.
Historically Bullish
Bitcoin has a history of undergoing vast corrections after recording parabolic rallies. In many instances, traders moved their capital out of the flagship cryptocurrency. They put them in oversold altcoin rivals, leading to the so-called altseason. Once altcoins marked their peaks, traders flocked back into the Bitcoin market to resume its rally.
More so, the rally in the altcoin market concerns majorly projects that compete with Ethereum. The fees on the second-largest blockchain have increased substantially following its bull run. That is pushing many speculators out of Ethereum markets to bet on its rivals, including Avalanche, Matic, Celo, and many other smart-contracts platforms.
Multi-chain network Avalanche is one of the best performers against Bitcoin and Ethereum. Source: AVAXUSDT on TradingView.com
The cost to purchase one Ethereum token has dropped 6.58 percent from its record high of $1,839.
What’s Next for Bitcoin?
Notably, Ethereum fees need to come down to reduce speculation in other markets. In turn, that could limit Bitcoin’s downsides in the short-term as the cryptocurrency continues to maintain support above its 20-4H exponential moving average (the green wave in the chart below).
Bitcoin attempts to rebound from 20-MA support. Source: BTCUSD on TradingView.com
Fundamentals remain supportive. On Tuesday, Federal Reserve Chairman Jerome Powell admitted that the US economy had not realized the coronavirus pandemic’s total impact on labor markets. He added that the Fed would need to continue its dovish measures to guarantee maximum employment in the future.
“We expect that it will be appropriate to maintain the current accommodative target range of the federal funds rate until labor market conditions have reached levels consistent with maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time,” Mr. Powell stated.
That expects to push investors away from cash-based and riskier assets and turn back to safe-havens like gold and bitcoin. Tesla’s investment into the cryptocurrency now serves as a benchmark through which other corporates can explore alternative reserves assets to protect their balance sheets from the “dollar devaluation.”
On Wednesday, Twitter’s CFO Ned Segal said they might exchange their greenback reserves for Bitcoin.
Yashu Gola
A relief bounce in the Bitcoin market Thursday did little in offsetting its prevailing correction bias as its price slipped inside a critical support area.
The BTC/USD exchange rate touched an intraday low of $45,000 during the early Asian trading session Friday, down by up to 22.90 percent from its record high established earlier this week. Traders held on to $45,000 and the levels around it as support, given the range’s historically-verified capability of capping downside corrections.
Bitcoin Support Confluence
Nonetheless, the latest downside move appeared much stronger, raising possibilities that bitcoin would extend its decline further lower.
“[I’m] keeping an eye on the $44ks — tested once, but a break below there likely sends price back down to $40k,” alarmed Josh Rager, the co-founder of BlockRoots.com. “And if price makes way to $40k — you know it’s going to wick in the mid to upper $30ks. [It] could bounce here — but going to take it level by level/day by day.”
Bitcoin is down over 22 percent from its record high. Source: BTCUSD on TradingView.com
Mr. Rager’s downside target at $40,000 converged well with the blue wave in the chart above.
It represents the 50-period simple moving average (50-SMA) on Bitcoin’s daily chart. The wave has underpinned the cryptocurrency’s uptrend throughout 2020. Many instances showed the price breaking below the 50-SMA but only to reclaim the wave later to confirm the market’s bullish bias.
Analyst Willy Woo’s floor model—which has zero evidence of turning false—also alerts about hard price support near $39,000. Mr. Rager agreed that Bitcoin could fall to $40,000 in the coming sessions while forming a wick towards $38,000-39,000. The cryptocurrency may resume its uptrend at a later stage.
Psychological Price Floors
Bitcoin rallied by almost 100 percent in 2021 to hit an all-time high above $58,000. Its gains appeared on growing institutional adoption, led by Tesla’s $1.5 billion investment into the cryptocurrency and its intentions to use the decentralized token as a form of payment for its services and products.
This week, mobile payment app Square announced that it had also upped its Bitcoin reserves by investing another $170 million into the cryptocurrency. The Jack Dorsey-headed firm had added $50 million worth of bitcoins to its balance sheet late last year.
Nasdaq-listed business intelligence firm MicroStrategy also took a similar but heightened call to increase its bitcoin exposure. It put $1.06 billion to purchase another stash of the digital assets, pushing its total reserves from around 71,000 BTC to above $90,500 BTC.
Square has 5% of their balance sheet in bitcoin.
Tesla has 8% of their balance sheet in bitcoin.
Microstrategy has 95%+ of their balance sheet in bitcoin.
Who is next?
— Pomp 🌪 (@APompliano) February 24, 2021
All the firms revealed the average rates at which they purchased Bitcoin. For Tesla, it was between $35,000-$40,000. MicroStrategy’s latest investment into the Bitcoin market arrived when it was trading above $52,000. Meanwhile, Square stated that it purchased the cryptocurrency at a mean price of a little over $51,000.
That also increased Bitcoin’s ability to reclaim levels above $50,000 in the coming sessions, given the corporates’ high-profile exposure in the cryptocurrency above the said levels.
Cointelegraph By Jordan Finneseth
The cryptocurrency market recovered some of the losses from the past couple of days on Feb. 25 as Bitcoin (BTC) briefly pushed back above the $50,000 level and multiple altcoins have seen double-digit price gains.
Data from Cointelegraph Markets and TradingView shows that Bitcoin bounced off a low of $45,200 late on Feb. 24 before rallying 15% to $52,000 in the morning trading session.
While the rebound in the cryptocurrency market is a welcome sight for bullish investors, Bitcoin price is still finding resistance above $50,000, and this level has yet to be confirmed as support.
Economists have also begun to worry about the rising Treasury yields, which are usually a signal of weakness for the economy and can have a large impact across many markets.
Catalysts for a $100,000 Bitcoin
Now that Bitcoin has entered a slight corrective phase, analysts are debating whether or not the digital asset will be able to surpass $100,000 by the end of 2021.
According to Giles Coghlan, chief currency analyst at HYCM, the answer to that question “depends on who you ask,” with crypto advocates feeling “very bullish” that 2021 “will be the year Bitcoin steps into the limelight,” while traditionalists remain skeptical about the “risky, unpredictable market.”
Coghlan sees the momentum behind the recent gains being driven by “the general public hype” following pro-crypto tweets from Elon Musk and Mark Cuban, but now the enthusiasm “seems to be waning” as Bitcoin struggles to hold $50,000.
Due to the volatile nature of BTC, it’s “too early to tell if this will be the new baseline support level.”
Coghlan said:
“I wouldn’t be surprised if the price slowly drops back to $40,000 USD in the coming weeks, which seems to be a more realistic level of support. A drop below this is also plausible based on how Bitcoin performed over the course of 2020.”
The analyst sees the acceptance and endorsement of Bitcoin by “large institutional funds and regulatory bodies” as the next big driver of new price highs, which would also end the domination of the crypto market by retail traders and could lead to a “less volatile” market as a result.
Announcements and protocol upgrades boost altcoin prices
Several large- and mid-cap altcoins saw their prices breakout on Thursday as recent announcements and new integrations pushed trading volumes higher.
Cardano’s ADA is the best performing coin in the top 10, currently up 10.4% and trading at $1.15, while Fantom (FTM) continues to benefit from its recent cross-chain integration with Ethereum and is up 31.79% to a price of $0.7755.
Other notable performers include Enjin Coin (ENJ), which is currently up 34% and trading at $0.6221. Polygon’s MATIC has also increased by 27.74% and trades at $0.2023.
The overall cryptocurrency market capitalization now stands at $1.533 trillion, and Bitcoin’s dominance rate is 61.3%.
Yashu Gola
Just as the GameStop Corp. (NYSE: GME) shares exploded higher in the final hours of trading on Wednesday, Jim Cramer advised the videogame retailer’s board to buy Bitcoin to increase its stock prices further.
“One last time GME,” tweeted the CNBC’s Mad Money host. “Issue one billion dollars in stock, buy one billion in bitcoin, and watch your stock go to $430.”
The statement appeared as other firms on Wall Street opted to replace a portion of their cash reserves with the benchmark cryptocurrency.
On Wednesday, Nasdaq-listed MicroStrategy revealed that it purchased $1.06 billion worth of additional bitcoins atop its 70,000-plus BTC reserves. Meanwhile, payment company Square also announced that it had added $170 million to its $50 million BTC profile on the same day.
Bitcoin rose from $3,858 to over $58,000 on booming institutional adoption against a depreciating US dollar. Source: BTCUSD on TradingView.com
Tesla, a Fortune 500 company, also invested $1.5 billion into Bitcoin to protect its reserves from the US dollar devaluation risks. The US carmaker went a step ahead by announcing that it would also start accepting the cryptocurrency for its services and products. The revelation came in early February.
Why Buy Bitcoin
Since the coronavirus pandemic began, the economic cycle came to a halt. The US government and its central bank, the Federal Reserve, responded by injecting additional US dollar liquidity into markets via banks (also known as quantitative easing), making loans affordable (cutting interest rates near zero), and providing direct aid to people (via stimulus).
The US dollar index, which measures the greenback against a basket of foreign currencies, fell by more than 12 percent due to its oversupply.
Many corporates were sitting atop huge piles of cash reserves. They did not want their dollars to get devalued due to inflation. It led them to Bitcoin, a nascent hedging asset that promises to retain its value against fiat devaluation. That became the main reason MicroStrategy, Tesla, Square, and many other firms decided to purchase the cryptocurrency.
Bitcoin surged by more than 1,200 percent from its mid-March nadir to $3,858 after the Federal Reserve’s commitment to providing infinite quantitative easing. MicroStrategy’s investment into the cryptocurrency has so far earned it twice its original input. Tesla is also sitting atop a $1 billion profit owing to Bitcoin’s parabolic uptrend.
But…
…Mr. Cramer proposed Bitcoin as a financial asset that could safeguard the so-called pandemic losers as well. His advice to the GameStop board to buy the cryptocurrency had more to do with generating adequate capital to fund its futures operations, especially as it came closer to bankruptcy last month.
The GME stock is currently in the midst of volatile price swings. On Wednesday, its value spiked by 104 percent to close at $91.71. TraderAlert data showed that the GME’s options activity also surged to its highest levels in two weeks, with bullish contracts outnumbering the bearish ones. The spike happened almost without any concrete catalyst.
GameStop stock posts a wild intraday rally without reason. Source: GME on TradingView.com
GME earlier became a central focus of a Reddit-driven buying mania launched by trader Keith Gill, also known as by his pseudonym DeepF**ingValue, in January to hurt hedge funds short on the GameStop stock. Mr. Gill doubled down on his GME investments lately by purchasing 50,000 extra shares.
The GME stock jumped 13 percent after his call. GameStop currently had about $500 million in its cash reserves as of October 31 last year.
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