Tuesday, November 24, 2020
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Bitcoin Up 5%, Recovery Or Dead Cat Bounce?

Bitcoin has felt a brief moment of relief after following traditional markets downwards. On Thursday, bitcoin jumped almost 5% to levels above $10,750. This marked bitcoin’s biggest single-day gain since July. Unfortunately, this movement was not enough to clear bitcoin from another potential plummet. Let’s take a look at why I believe this is a dead cat bounce rather than the start of a recovery.

Until now, bitcoin’s sharp recovery from weekly lows was not enough to draw in more buyers at the $10.7k level. At the time of writing, the trading range remains to be $10,650-$10,750, unable to indicate a clear trend.

Bitcoin daily chart

September has been full of stagnation in bitcoin price with it being stuck at the $10k–$11k range since September 4th.

As investors look for safety, the U.S. dollar continues to grow in strength. This creates selling pressure on all assets, including bitcoin. One interesting argument is that bitcoin is getting closer to significant divergence from traditional assets. Hedge fund manager of Ikigai, Travis Kling, continues to see the bitcoin to gold ratio breakout from its downwards trend. The hope is that bitcoin’s current dependency on factors such as the U.S. dollar will breakaway so that it can be the uncorrelated asset that it was meant to be.

BTC/USD vs. gold ratio historical chart showing downtrend and breakout

Volatility indicates a big move is cranking up. Bitcoin’s one-month implied volatility has declined to 44%. This is the lowest level in two-years. History has shown that implied volatility of 50% or less leads to violent price action.

Bitcoin one-month implied volatility

The lowest level was 35% right before the mid-November 2018 crash.

*My opinion. Not Financial Advice.

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