Bitcoin

Bitcoin’s Back! Is a New Crypto Bull Market Upon Us?

Not only has it been tightly contested, but it’s also been rife with controversy and intrigue. Market reactions have been interesting, with stocks surging gleefully at the prospect of political gridlock, with a Democrat President and Republican senate possibly translating to no policy-related surprises for the foreseeable future. However, it is Bitcoin that’s had perhaps the most noteworthy reaction and currently finds itself perched at a level that demands further discussion and analysis. In this article, we’ll take stock of where bitcoin currently stands and explain why this is an extremely crucial moment in its history.

4-Hour

Looking at bitcoin on a shorter-term timeframe, we can see how the leading cryptocurrency has performed during this past election week. Since November 3, we’ve seen bitcoin going from around $13,386 to a high just shy of $16,000 on November 6. The following day saw it ranging sideways before selling off in the evening. On November 8, it fell below $15,000 to reach a low of around $14,355. It has since reclaimed that all-important $15,000 level to trade at around $15,385 at the time of writing. This price action at the 4-hour timeframe, though significant, obscures the historical relevance of the price levels we currently find ourselves at.

4-hour chart of bitcoin, priced in USD. Source: TradingView.

Daily

Zooming out to the daily chart reveals a few more notable details that should clue you in to the importance of this most recent move. As you can see below, the last time bitcoin made a run that attempted to challenge its former all-time highs was in the summer of 2019. 2019 saw bitcoin emerging from a pronounced bear market.

By December of 2019, it had lost around 84% of its value, trading at just over $3,000. In 2019, it proceeded to take out all but a handful of lower-highs, kissing the $14,000 level before retracing back to around $6,500 by the end of the year. A January rally at the start of 2020 would see it breaching the $10,000 level before COVID-19 became a reality, and the rest is coronavirus history. Like all other asset classes, crypto would also endure a momentous pandemic-inspired sell-off before spending the rest of the year slowly and steadily reclaiming lost ground.

Daily chart of bitcoin priced in USD. Source: TradingView.

Weekly

Zooming out even further, to the weekly timeframe, reveals even more of bitcoin’s historical price action and puts these recent moves into context. Election week saw bitcoin closing at around $15,500 on the weekly. As you can see from the chart below, this last weekly candle represents a weekly close above $15,000 for the first time in almost two years. Not just that, it also means that in bitcoin’s entire trading history, bitcoin has only closed higher than this November 2 candle twice.

The week of December 11, 2017, saw it closing at around $18,950. The week of January 1, 2018, saw it setting a lower-high at around $16,160. Why is this relevant? As you’ll see below when we look at the monthly chart, we’re approaching levels at which there isn’t much prior price action. This means that the vast majority of bitcoin trades that have ever been made are currently sitting in profit, with only those who bought in at the very top left still in the red.

Weekly chart of bitcoin priced in USD. Source: TradingView.

Monthly

Monthly chart of bitcoin priced in USD. Source: TradingView.

The monthly chart clues us into a few more insights that traders and investors alike ought to be aware of. As you can see below, back in 2017, the blow-off top of bitcoin’s epic bull run lasted less than a month. This is why, despite reaching as high as 20k in mid-December 2017, it had come back down to below 14k by the end of the month.

Why is this important? Because it means that at the end of October 2020, bitcoin’s monthly price chart closed at almost precisely the same level as it did back in 2017. In other words, there are now no monthly closes in bitcoin’s entire history that are higher than where it’s currently trading. To paraphrase this once more, if November’s candle closes above $13,800, it will be the highest monthly close in bitcoin’s short but highly eventful trading history.

What does it all mean?

What it means, is that the higher the price goes and the longer it remains at these levels, the less resistance there is from traders trying to cash out of unprofitable positions. Additionally, the more confidence traders and investors will have that this isn’t the top of a bubble about to burst, but rather the beginning of a much more significant move higher. The reason prices can surge higher once an all-time high is breached, particularly in an asset as volatile as bitcoin, is that the proverbial “blue sky breakout” has no previous price action to constrain it. Prices can greatly overshoot following a break above an all-time high before price discovery tempers animal spirits and consolidation sets in.

Finally, and perhaps most significantly, Bitcoin, the cryptocurrency space as a whole, and indeed the entire global economy, find themselves in a radically different world than they did back in 2017. Firstly, there are now many institutional on-ramps, allowing much larger investors to purchase and hold crypto. Secondly, the global economy was in a far less precarious position in 2017 than it is now in this post-COVID world.

Thirdly, bitcoin’s deflationary nature and proven ability to securely hold value become more enticing as time goes on, particularly in a financial world where there don’t seem to be many sea-worthy escape rafts. Lastly, at less than $250 billion, bitcoin’s current market cap is still much lower than gold’s and even smaller than all of the individual FAANG stocks, except Netflix.

by Giles Coghlan, Chief Currency Analyst, HYCM

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