By Kenetic Trading on The Capital
This week in Crypto
Despite the obvious bearish sentiment on social platforms last week, the resistance turned support line that we have focused our attention on for over a month now, has remained intact. Bitcoin’s price dropped ~7% since last Monday and bounced off this trend line for the 7th time in the past month. The more times BTC tests this support, the more likely we see it fail and move down towards the log long term trend line at around $7,800 levels. We will watch closely this coming week as the COVID pandemic deepens and takes hold again in the US and risks another equity sell-off. Even with colossal central bank support of the stock market, fear and panic of the concerning accelerating infection rates in the US — notably in California, Florida, and Texas — is likely to cause jitters and could result in a risk-off mindset prevailing in Bitcoin and other financial assets.
The daily MACD indicates clear downward momentum and as the weekly MACD starts to roll over, a breach of the support line looks more likely than not, especially considering the bearish COVID headwinds as the world has reached the rather grim headline grabbing milestone of 10m cases. The flat derivative funding regime, indicating neither leveraged bulls nor bears have a particularly strong view, demonstrates the lack of short term conviction that either camp has right now.
Should we breach the trend line and move back inside the triangle formation, established since June’s $14k high last year, we may well stay here until this pattern completes in August — see green arrow in chart below. We continue to maintain a view that sideways consolidation this year would provide a solid price floor for a bull market in 2021 and view $7800 — $9,000 as a decent range to add to long exposure via selling put options at current market levels.
Education = Adoption
Last week saw payments giant Paypal and Venmo start the rumored process of incorporating Bitcoin across its platform. Should these rumors be substantiated, then 325m global users will have direct access to the sale and purchase of crypto and Paypal will join some of its peers — CashApp, Revolut, Robinhood — as it contributes to the overall adoption of crypto and the education process of digital assets to its sizable retail user base.
Wind back to 2018 when the founding CEO of Paypal publicly voiced his concerns about Bitcoin, and it’s fascinating to observe how market opinions change as Bitcoin continues to permeate into industry and commerce as well as into investors’ portfolios:
In my opinion, it’s a colossal pump-and-dump scheme, the likes the world has never seen. The losers are ill-informed buyers caught up in a spiral of greed…it helps to understand that Bitcoin has no value at all — Bill Harris, former CEO of Paypal
This example is not unique. JP Morgan’s slow pivot from ‘’Bitcoin is a fraud’’ and Jamie Dimon’s threat to fire any employee who was trading BTC because ‘’they are stupid’’ to becoming a key banking relationship to US exchanges Gemini and Coinbase is a great example of how the crypto education and understanding process takes time before institutional (and retail) fully appreciate the technology for what it is and its current and potential demand.
Paypal’s move is no doubt significant for overall adoption, especially considering that comparatively, Paypal has 21x the number of users than the current total user base of Coinbase who is also rumored to be in the running to offer the liquidity in the backend. But the role of Paypal and others that join the market should not stop with developing high-quality UX and tight product fit. Education of the market is paramount to the continued strengthening of this 11-year young asset class.
Like Paypal and JPM, education and a fundamental understanding of Cryptocurrencies are required by these institutions to make the necessary investment commitments to build the products and services for the industry. This same education and understanding are also required by retail investors to invest with increasing conviction and strong hands which helps to provide price support and the financial incentive for further adoption from the likes of other Paypal’s in the future.
However, paradoxically what attracts many to Bitcoin in the first place and facilitates many of its core attributes of decentralization, immutability, and censorship resistance is the one thing that hinders its progress and that is that Bitcoin’s blockchain is open source technology. In the absence of a centralized organization, characteristic of open source software, Blockchain, and in turn cryptocurrency, certainly suffers from a lack of coordinated PR and marketing which presents challenges to the process of education that is required to develop the market. This is the trade-off that many understand and are trying to solve. As the likes of Paypal and JP Morgan go through the education curve and commit to the market, by default, they have an inherent incentive and duty to contribute to the overall education of their own ecosystems.
Great examples already exist of how institutions take this responsibility of educating the market seriously and understand that adoption of open source technology needs leadership and investment in education — notably Square Crypto with their developer grant scheme and US firm Swan Bitcoin’s recent appointment of a Chief Education Officer. Galaxy Digital also recently took steps to fill this education gap for financial advisers in the U.S. by partnering with CAIS to offer educational resources for blockchain and digital assets.
“Bitcoin specifically is a story about adoption… and the next big group that’s going to adopt bitcoin as a store of value, as a digital gold, are the financial advisers. CAIS is spectacularly situated to help us educate them and then connect with them to sell our products.” — Mike Novogratz, Galaxy Digital CEO.
We hope Paypal and others that follow, understand how crucial this part of the Cryptocurrency journey is, and how purchasing it is just the first step before moving to the more complex but vital understanding of private key management and self-custody and the power of non-sovereign, self-custodial ownership of personal wealth outside of the traditional banking system.
Goldman Sachs recently upgraded is pricing forecast for gold, adding to the reassurance that a technical correction is unlikely and the base it has been forming between $1,660 and $1,760 per ounce since April will act as support. Already up over 16% this year, another move higher seems probable, and a breach of the important $1,800 levels last seen post the 2008 financial crisis between 2011 and 2012 would put gold on target for a shot at an all-time high. These are certainly exciting times for the gold bugs.
Bitcoin and gold share many of the same investment narratives — inflation hedge, sovereign wealth ownership, immutability, scarcity — so studying gold price action and especially how it reacts in times of uncertainty and economic strain is a logical strategy when considering Bitcoin as an investment. In gold’s favor, it has been a store of value for thousands of years so it has had a significant head start in terms of adoption in the minds of investors. Additionally, in today’s world, very little education is required to explain the reasons why gold should be held in a balanced portfolio and 1% — 10% allocations across pensions, hedge funds, government treasuries, and family offices is a common structure.
Gold is performing exactly as it should. The world is racked with uncertainty and compounded by the international game of central bank competitive devaluation of fiat currency. This results in a transfer of capital to safety to escape this erosion of purchasing power. In our view, it makes total sense for Goldman to raise its 3, 6, and 12 months forecast to $1,800, $1,900, and $2,000 per troy ounce.
Over time, as the investor and user base of Bitcoin becomes aware of the technology’s capabilities through industry-driven education, we expect to see Bitcoin to follow gold’s path and become the go-to asset in times of uncertainty. We believe that long gold and long Bitcoin are very sensible trades in the years ahead with Bitcoin’s asymmetric return potential making it more attractive compared to gold in terms of potential upside potential.
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