Bitcoin fell by $500 from $10,000 to $9,500 on Monday, reviving a debate over whether the top cryptocurrency is a safe haven asset like gold or a risk asset like equities.
The cryptocurrency failed to draw haven bids as stock markets across the globe fell on concerns the coronavirus is spreading outside China. Notably, the Dow Jones Industrial Average shed over 1,000 points, while go-to risk-off assets gold and yen ticked higher.
It was in start contrast to the price action seen in January, when the cryptocurrency was solidly bid last month amid bouts of risk aversion fueled by the U.S.-Iran tensions and the coronavirus outbreak in China.
Bitcoin rallied on Jan. 3, when the U.S. attacked Iran's base in Iraq, injecting geopolitical uncertainty in the market and sending oil, gold and yen higher and stocks lower.
The tensions escalated with Iran's retaliatory attack on Jan. 8. While risk assets again took a beating, bitcoin printed highs above $8,460 on that day.
The gains were extended further in the following three weeks as the geopolitical tensions were replaced by the virus outbreak and fears of deeper slowdown in the global economy.
Bitcoin ended January with 30 percent gains, its best start in seven years, strengthening its appeal as a haven asset.
"The more I analyze this Iranian situation, the more bullish on gold and BTC I become," billionaire investor Michael Novogratz tweeted during the height of the U.S.-Iran tensions.
Bitcoin's one-month correlation with gold also strengthened, supporting the notion that bitcoin continues to mature as an alternative to traditional “risk-on” financial assets, as noted in a monthly report by the cryptocurrency exchange Kraken.
On Monday, however, the cryptocurrency found little love as a haven. One takeaway might be that bitcoin still trades as an uncorrelated asset.
"It's irresponsible for anyone to say that bitcoin is truly a safe haven,” said Jeff Dorman, chief investment officer of Arca Funds. “Look at how gold and Treasuries and equities react instantaneously to global fears. Bitcoin and digital asserts live outside that work flow.” |
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Bulls Need to Defend $9,400
BTC: Price: $9,600 | Market cap: $175 billion | 24-Hr Volume: $44.6 billion
Trend: Neutral Bitcoin has produced a big head-and-shoulders pattern on technical charts, which is a bearish reversal sign. A drop below the neckline support marks a transition from a bullish higher-lows, higher-highs setup to bearish lower highs and lower lows.
At press time, the neckline support is seen at $9,400. Acceptance under that level would confirm a breakdown and create room for a deeper decline to $8,300 (target as per the measured move method).
Seasoned traders would argue that head-and-shoulders breakdown often traps sellers on the wrong side of the market. While that can be true, its effects depend on context. If the pattern appears following a notable price rally or at multi-month highs, the breakdown tends to cause more sellers to join the market, keeping prices low.
In bitcoin's case, the pattern has appeared following a stellar rally from lows near $6,850 observed on Jan. 3 and at five months.
As a result, a breakdown below $9,400 could prove costly. That said, a post-breakdown sell-off, if any, could be cut short near the crucial support levels lined up at $9,188. Bitcoin had turned lower from that level on Jan. 19 – and the higher low of $9,075 created on Feb. 4.
Bitcoin is currently trading near $9,600, having defended $9,500 during the early European trading hours. It's worth noting that dips below $9,500 have been consistently short-lived since Feb. 19.
If that level continues to restrict losses, some buying pressure may emerge to lift prices back to $9,750-$9,800. The outlook, however, would turn bullish only if prices rise above $10,128, as discussed Monday.
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| | | | Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments. |
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