What a difference a day makes, or, in this case, a weekend. Happy Monday, everybody.
Last Friday, the markets were on a tear, zooming to fresh all-time highs across the board. Today, a broad sell-off has taken hold, with crypto assets bearing the brunt and popular tech stocks feeling the pinch as well.
For bitcoin, this is certainly not the first major pullback during this cycle, nor is it even the most severe. It is, however, the scariest.
We’re up about 80% year-to-date, and even a normal bull market retracement from the peak right now would take us all the way back to $40,000 per coin.
Depending on how the market closes today, the picture painted on the graph could be either very pretty or very ominous, and the way it’s going as I write, things are not looking great for the former.
Using technical analysis, the formation that we’re looking at on bitcoin’s chart right now is known as a Hanging Man. Here we can see it circled in purple. Notice the small red body and that huge wick down.
Should the price recover by the end of the day, however, the daily candle, which is far more important than the four-hour candle shown above, will turn bright green.
That would certainly be a good sign, and it would be celebrated by price watchers as a rejected sell-off. As we know, however, past performance is not an indication of future results, meaning that the charts only show us history, not the future.
With the powerful narrative that bitcoin is good for hedge funds and multinational corporate balance sheets proliferating through the mainstream psyche, it certainly does seem more likely that this bull has more room to run, even if we are in for some volatility in the short-term.
For those who believe bitcoin is headed higher, we should see some really great entry points in the near future.
Mr. Mojo rising
To say that bitcoin is eating into the market share of gold right now would be an understatement.
Especially with interest rates and bond yields on the floor, gold, which bears no yield, seems all that much more attractive in comparison.
All things being equal, had bitcoin never been invented, gold would probably be trading near $3,000 at the moment. Perhaps it’s notable that gold is up off the lows today.
One thing that has changed in the macro environment, however, and has not received enough attention – either from the world of crypto or the broader financial community – is the fact that rates are indeed rising.
In this chart, we can see the U.S. 10-year Treasury bond, which after seeing an all-time low in August, has actually been rising fairly steadily.
At the start of this year, we saw the yield passing 1%, and by now it is up another 36 basis points.
It’s important to keep a keen eye on this figure, as the floor-low yield has been a big part of the current narrative of why portfolio managers should allocate to bitcoin.
It’s not like a yield of 1.364% is really enough to convince anyone that bonds are a good investment, but the higher that rate goes, or is expected to go, the tougher it will be for stocks and cryptocurrencies to keep climbing as they are.
Truth be told, we’re probably still a very long way away from this actually becoming something of significance. In the meantime, asset inflation persists, and we as investors continue to benefit.
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