BTCUSD; A Parabolic Ride Fueled By FOMO

Intermediate
  • BTCUSD has been making new highs; again
  • The time based technicals are mixed; they suggest more upside
  • The U.S. level of debt : GDP is a driver,  as are the turbulent final days of Trump
  • Many once sceptical voices are now becoming converts

“…You gotta take it up a level and go up higher

Put more fuel in the tank and turn up the fire

Come on, and take leap into your destiny

And come on up, come up, come up with me

We’re going up, up up,…   ”

Tim McMorris

Writing an opinion piece on Bitcoin against the U.S. Dollar is setting oneself for a hiding to nothing.                     

Despite the warnings we all know about assets that rise in an exponential or parabolic manner, the lyric above seems to capture the mood that has characterised the recent market for this cryptocurrency.

BTCUSD Long History

Figure 1 BTCUSD Long History                                         

Technical Sentiment

Figure 2: Technical Sentiment

Source: www.investing.com and Spotlight Ideas

The technical sentiment as in Figure 2 implies there may be some near-term selling, however, the signals suggest  that this will soon yield the power to a renewed bout of Bitcoin buying.

A key driver behind the renewed surge in BTCUSD is the fear of missing out or “FOMO”. 

Surges before in the price of the best-known crypto currency seem to have fizzled out just as uninformed members of the public were lured in by the prospect of getting rich quick as they chased new “ATH”, all-time highs.

Many were badly burned as not all can afford to be “HODLers”  i.e. Bitcoin holders.

 Hodl often written HODL) is slang in the cryptocurrency community for holding the cryptocurrency rather than selling it. … A person who does this is known as a Hodler.

However, as if to refute another financial or economic law, could it really be different this time?

Big Voices

One reason to say this is that we are now seeing many leading players on Wall Street joining in. For example, BlackRock say Bitcoin could be a global market. Morgan Stanley have suggested that as U.S. debt to GDP has grown from 55.6% in 2000 to 91.2% in 2010 (as the GFC raged) to now where it is measured at  106.9% following huge COVID-19 stimulus spending. This will rise further as the Democrats will control all offices of the federal Government from January 20 and so Biden’s spending binge will be unrestrained.

Also, after the ridiculous and shocking events of January 6th, even without his Twitter account, who knows what mayhem the big and belligerent voice 45th President could cause in his last days in office. When the U.S. President is branded a clear and present danger to his own country, it is hard to hold its currency as Trump tramples on trust.

However, not all opinions are equal and the voice that has my caught attention is that of the leading  bank J.P. Morgan Chase.

In September 2017, Jamie Dimon the CEO said:

“…If we had a trader who traded Bitcoin, I’d fire him in a second for two reasons. One, it’s against our rules. Two, it’s stupid,…

   …You can’t have a business where people are  …going to invent a currency out of thin air …It …won’t end well … someone is going to get killed …and then the government is going to come down …on it. … It’s a fraud…”

Hmm…on January 5th analysts at this fine institution released research to state their great minds  believe that the currency’s price will jump to USD146,000 in the long-term.

(I put that figure in bold font to capture your attention)

Embrace the volatility…if you dare

The technical picture suggests BTCUSD is a strong buy and yet dig deeper in the granular data and one finds that the Williams %R, (Williams Percent Range) sits at -1.896 saying that BTCUSD is tending toward being overbought.

Similarly, short-term moving averages defined as the 5-day or 10-day (MA5 and MA10) also both imply that in their simple form BTCUSD is overbought.

Should you buy Bitcoin?

The answer as to whether one should buy now, or wait, or not buy at all is one’s own decision. I certainly do not think I would have the stomach to run shorts in the market.

When faced with a dilemma, I like to paddle my feet in a rive of reality. So, one question I keep returning to is “What is meant by money?”

  • An accepted medium of exchange
  • A standard of deferred payment
  • A store of wealth or value
  • A unit of account

Bitcoin can answer “Yes” to the first two questions; however, the volatility makes the answer to the third question uncertain and as for the fourth…we just do not know who stands behind Bitcoin.

There is no government or central bank and whilst some may say that is the whole point the truth is that Bitcoin is too lumpy to be a smooth and efficient medium of exchange. Perhaps we need to get the tinsnips out and trade in bits of Bitcoin.

Regulation; regional variation

Around the world, governments and central banks have been keeping a close eye on cryptocurrencies. They will not just stand by and let unaccountable financial mediums of exchange challenge the current dominance of fiat money.

It is therefore no surprise to learn that there are ongoing attempts to regulate the crypto asset market.

The fact remains that to succeed there needs to be global coordination from regulators and legislators around the world to keep ahead of the curve.

The U.S. is leading the way in terms of a sophisticated enforcement of crypto regulations. However, the approach does appear fragmented as some states are passing easy laws to attract Bitcoin operations and finance. N contrast, those states that have established financial centres e.g. New York, Illinois and California passed restrictive legislation regarding crypto assets and investment,  or have suggested that this will be their approach in the future.

The U.K. has taken bolder steps in a more unified manner in relation to banking approvals. When it comes to tax treatment, the position is becoming much clearer in both jurisdictions.

As the U.K. has now left the EU and ended its transition period when EU law still applied there is greater scope for the U.K. to take a lead and establish a unique model of crypto regulation, not tightly linked to the EU approach.

Where to now?

BTCUSD One-Week Chart

Figure 3: BTCUSD One-Week Chart   Source: www.investing.com , Spotlight Ideas

Figure 3 shows that on Friday, January 8, 2020 the level of BTCUSD started to lose momentum as 41,702 proved to be a resistance. There is a risk of retreat to 38,000. This could be met by a violent jump higher particularly if there is any more trouble in the U.S. as Inauguration Day approaches.

I have not bought Bitcoin; you may say I am a fool, but as old minds of the market say:

“…if you do not understand a product…do not buy it…”

Well, I like to think I do understand it, but it is the Blockchain that I am interested in…not a gun shoot in the financial wild west.

The next big test for BTCUSD is breaking over 45,000…and then we can contemplate 50,000 … 55,000.

I will not chase this odd market; I like assets where I can kick the tyres and have the drains up. That said, if you do, good luck but never forget, “Caveat Emptor”

Macroeconomic Strategist

Stephen Pope is the Managing Partner of Spotlight Group. He has worked in the world of finance since 1982 and has performed d... Continued

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