Bitcoin and the Demise of the “Digital Safe Haven” Narrative
Matt Weller, CFA, CMT March 24, 2020 5:28 PM
“There is no alternative [to equities]”
“Don’t fight the Fed”
“Buy the F*ing Dip”
“Interest rates have nowhere to go but up from here”
“COVID-19 is contained/just the flu/only killing old people”
There’s no shortage of market narratives that have collapsed over the last two months, but for cryptocurrency traders, the implosion of the “bitcoin as a digital safe haven” meme may be the most significant.
Like just about every other major asset, with the possible exception of US treasury bonds, traders dumped digital currencies relentlessly earlier this month in a mad dash to raise cash (specifically US dollars) from any liquid asset. At least when it comes to “The Great Cessation” of economic activity as countries across the globe shutter in unison, Bitcoin has served as a poor store of value in recent weeks.
Of course, the massive response from both fiscal and monetary policymakers should theoretically benefit Bitcoin in the long run. After all, the cryptocurrency’s hard-coded cap on supply of 21M bitcoins and relatively low new issuance (poised to drop below 2% after May’s “halving” of the supply) contrasts more starkly than ever with the profligate spending and money “printing” from major governments and central banks. That said, investors tend to focus on quality and cash flows through recessions, so they’ll likely be reticent to aggressively bid up a barely 11-year-old digital “asset” that has seen repeated drops in excess of -70% in its short life, including over the last 9 months!
In any event, Bitcoin has at least stabilized over the last couple weeks after the panic-driven mid-month collapse to below $4,000, with the Fed’s aggressive liquidity injections playing a role (astute traders will note that gold has also rallied strongly in recent days). From a technical perspective, the cryptocurrency is still trading below its 21-day exponential moving average, a proxy for the short-term trend, as well a key previous-support-turned-resistance level at $6600:
Source: TradingView, GAIN Capital
In the short term, continued consolidation below $6600 resistance would be seen as a bullish, especially if equity markets and risk appetite more broadly turn lower again. Of course, a confirmed break above this level would be a strongly bullish sign and could suggest that traders are recognizing Bitcoin’s potential, even if the “digital safe haven” narrative has failed this test. Finally, a break back below the weekly low around $5700 would be a bearish development and could foreshadow another leg lower toward $5000 again.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.