Bitcoin: Is there any value in this rally?

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By: Andria Pichidi

The 8-week rally in Bitcoin , breached today the $10,000 for a first time since February and retesting for a third time since September the 10,000-10,500 Resistance area. Other cryptocurrencies saw a similar price action. This has been concomitant with a rally in global equity markets which are pricing-in a reopening of major economies from virus-containing lockdowns, overlooking dismal data (such as a 6% plunge in Japanese household spending, in data released today, and an expected 16% plunge in U.S. April unemployment, in data released later) as being backward looking. Yesterday’s unexpected 8.2% y/y rise in Chinese exports in April, contrary to the median forecast for a 14.1% contraction, was a tonic for investors, while news that the US and China have agreed to strengthen cooperation in trade talks has gone down well, too.

However, the main factor that boosted bitcoin and in general the cryptocurrency market is the anticipation of a major technical event for the digital coin , i.e. Halving. The price of bitcoin is expected to continue to rally in the run-up to the “halving” on May 12.

The reward halving, during which the number of new bitcoins being issued are cut by 50%, takes place every four years in BTC’s case. This halving activity is the breakdown of block mining rewards in half and it makes the cost of mining activity more expensive than ever before. This activity tends to lead to a decline in supply and is directly proportional to an increase in demand, which would theoretically lead to higher prices.

Hence as the cryptocurrency market historically tends to decline after every halving, it seems that investors have increase their interest ahead of the event by boosting the entire market capitalization of the cryptocurrency market by more than $13 billion from a day before. Currently, the value of the entire market stood at $268.07 billion.

Other contributory factors probably include the central banks monetary policy, as the unprecedented economic destruction is being countered by massive fiscal and monetary policy measures globally. Also Bitcoin once again rekindles the believe that cryptocurrencies are being affected by the global equities performance but also reacts on major political and geopolitical events. This comes from the fact that cryptocurrency markets plunged following a plummet in oil prices and further sell-off in stocks back in February and MArch 2020, while since March 24 spike higher gain for the same reason, i.e. stocks recovery. The Bitcoin more precisely posted more than 150% rebound from $3,762 seen on March, which was slightly above 2018 bottom.

Bitcoin from a mathematical perspective, looks to be ready to form another parabolic circle with a potential lower peak after the ones that we have seen in 2017 and 2019. There is a repetitive pattern in bitcoin with lower wave peaks every time. Hence in the upcoming weeks will be interesting to see if that asset will minage to sustain the positive sentiment and more precisely above  the $10,000 level. This level is a key area to be closely watched as it reflects 6-month Resistance, a round number but also the break of the 61.8& Fibonacci retracement since 2019 plunge.

However, as following every halving the market tends to enter a bear market there is also the risk of a reversal if the top reached. Hence the bitcoin could turn lower again if we see a potential pullback below the 50% Fib. level or even the 20-week SMA, at 7900-8700 area. Hence please bare in mind that Bitcoin has always been and probably remains a very volatile asset subject to huge price swings. Hence the risk of a substantial drop remains.

Risk Warning: Trading-Leveraged Products such as Forex and Derivatives may not be suitable for all investors as they carry a high degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investment objectives and level of experience, before trading, and if necessary, seek independent advice.

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