Bitcoin Quietly Rising from the Ashes - Where to Next?
Matt Weller, CFA, CMT February 12, 2020 4:08 PM
While longer-term measures of sentiment remain subdued, short-term price action suggests that Bitcoin’s rally may be due for a breather.
For many traders, the recent parabolic surge in Tesla evokes a euphoria reminiscent of that surrounding cryptoassets back in late 2017, when Bitcoin peaked near $20,000. As we all know, Bitcoin ultimately collapsed to trade at just $3,200 a year later (though we wouldn’t expect that dramatic of a fall from Tesla, there’s a strong case for more downside if certain support levels are broken).
In any event, many traders who wrote off Bitcoin after its -85% drop may want to tune in again. The cryptocurrency has quietly risen from the ashes of despair to triple over the last 13 months. While the rally in price itself is certainly impressive, the most important word in that sentence may be “quietly.” Unlike the heady days in late 2017, when Bitcoin was a daily fixture in traders’ minds and financial media once it broke $10,000, relatively few market participants are even aware that Bitcoin has been rallying, much less obsessing over its day-to-day fluctuations.
Attention is notoriously hard to quantify, but using Google Trends search volume as a proxy, we can see that search interest in “bitcoin” was roughly 11 times higher at the peak in late December 2017. More to the point, search interest was already 7 times higher the first time Bitcoin broke above $10,000 in late November 2017:
Source: Google Trends, GAIN Capital
The relatively low level of retail interest in Bitcoin suggests that we’re nowhere near the mania levels that drove Bitcoin through $10,000 for the first time a little over two years ago. In other words, the formation of another similar bubble (a common occurrence in Bitcoin’s history to date) could lead to the cryptocurrency exceeding its previous record highs near $20,000.
While longer-term measures of sentiment remain subdued, the short-term price action suggests that Bitcoin’s rally may be due for a breather. Prices are approaching the highs from August, September, and October of last year in the $10,500-$11,000 range, with the RSI indicator showing signs of stalling out in overbought territory.
Source: TradingView, GAIN Capital
Given this backdrop, short-term bears could consider sell opportunities below $11,000 for a potential retracement back toward $9,000 or the mid-$8000s. Meanwhile, longer-term bullish traders may want to hold off on new purchases near current levels and wait for a pullback to accumulate more Bitcoin in case we see another bubble form.
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.