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Bitcoin Hits Price Wall, Analysts Remain Optimistic

Bitcoin failed to break the $11.1k resistance, but with so much going on who can blame it? After hitting the price wall bitcoin fell back by 6%, compared to silver’s 7.6%, it’s not that bad. With so much uncertainty it’s unclear when markets will have an open road. This article will explain a case for a bearish short-term but a bullish long-term.

Rough Waters

Historically, September is the worst performing month for equities while the S&P 500 does its worst in U.S. election years in October. Needless to say, the markets don’t need another catalyst on their worst time of the year. It’s quite clear that there is some correlation between equities and bitcoin, but gold is growing a stronger relationship with the digital asset. The 60-day positive correlation between gold and bitcoin strengthened to record highs earlier this month. This is bad news for bitcoin because as we saw in March, when investors are in need of liquidity they dump event their safest asset, gold.

Bitcoin and gold daily charts Source: TradingView

As shown in the chart, bitcoin’s daily chart shows a bear flag. It illustrates a bounce from $9,869 and then the continuation of the pullback from the highs back in August.

A Sign of Relief

John Todaro, head of research at TradeBlock, is calling for an improvement in price if he sees improvements in three major factors, a non-contentious election, increased stimulus and lowering COVID-19 cases.

“Over the past few weeks we have seen declining equities with investors positioning more risk-off given the lack of continued stimulus for businesses, political instability associated with a likely contentious election, and the risk of rising COVID-19 cases in the fall and winter… if those three risks previously mentioned rise, then we will see a further correction; however, if there is progress towards COVID-19 vaccine/treatment, and more fiscal stimulus then this correction will likely have been the worst of it for some time.”

Long-Term Bull

Research shows that institutional investors are changing their perspective on bitcoin as an asset. We’re moving away from ‘trade the price swings’ to more of a ‘buy in case all else fails’ narrative. Research firm, Delphi Digital has seen that investors are more skewed on holding than speculating. When comparing environments between bitcoin reaching $12,500 last month and its run to $13,800 in 2019, they found that there was little in common. They found that exchange balances continued to fall despite prices going up. This tells us that holders are unwilling to give in to the short-term price increase in order to profit heavily in the long-term.

Another interesting metric that Delphi Digital found was the growth in whales to growth in price.

Bitcoin whale vs. price growth trends. Source: Delphi Digital

As prices continue to go up over time, people with much to lose will begin to pay attention to bitcoin. This is why we see a love-hate relationship between institutions and crypto. We will see institutions like hedge funds increase their stake in theis space, not because they want to but because they need to. When every other asset in the world is being outperformed by crypto, do you really believe that they won’t want a piece of that? The only thing stopping them is unclear regulation as explained by CEO and Founder of Evertas, a crypto asset insurance company,

“Our research shows that institutional investors are enthusiastic about increasing their exposure to cryptocurrencies and crypto assets in general, but there are clearly many issues regarding the infrastructure that supports these markets that still concerns them. These clearly need to be addressed if the full potential of investment from institutional investors in crypto assets is to be realised.”

-J. Gdanski

As time goes on and investors realize that good times continue to come and go, we can be sure that although late, most institutions will join the party.

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