This week, global cryptocurrency market capitalization grew by +11.45% which was in line with the growth traditional markets saw during their shortened session. Global cryptocurrency market cap currently sits at $196 billion. We reviewed this week’s sentiment in both digital assets and traditional markets.
Within a list of all cryptocurrencies in the top 25, Chainlink has been the out-performer the last week. Chainlink surged +40%, which seems to be related to Gemini cryptocurrency exchange deciding to list Chainlink. In addition, other cryptocurrencies experienced the following price action:
Digital Asset Markets Stabilizing
Bitcoins price originally signaled weakness during the early sell-off in traditional markets last month. Since its original correction, Bitcoin has stabilized and still outperforms both Gold and the S&P 500 in the last year. Even though Bitcoin has done relatively well during market turmoil, it’s also important to assess it on a longer term frame to understand its non-correlated performance. As discussed in previous reports, investors that allocated Bitcoin to their portfolio the last year, have had the ability to de-risk their portfolios during market turmoil.
The largest risk factor we see for Bitcoin right now is its halving next month. We need to see significant growth in Bitcoin price to support miner operations. As discussed in a previous report, miners could drop off the network if they can’t at least achieve their break even cost to mine Bitcoin. Upon halving, Bitcoin price may need to maintain $15,000+ prices to provide that break even point for miners.
Traditional Market Rally Premature?
Despite jobless claims surging another 6 million + this week, the market reversed sentiment. Even though many investors believed the rally was premature, the markets still saw the biggest weekly gain in nearly 45 years. Investor sentiment in traditional markets seems to be very micro focused right now. You could argue that investors are not thinking about the long term implications that Coronavirus could pose within the economic environment. The market reversal this week stemmed from the following catalyst that seem to be very micro focused:
- Slowing virus growth rate in Spain & Italy
- Fed continued to inject liquidity into the financial systems
- Lower hospitalization rates in New York reported
What The Markets Are Forgetting?
Despite the positive signs this week, the market is highly discounting unemployment and other factors that have the ability of completely reshaping the economy. The factors below have the ability to put additional pressure on financial markets. We still believe too many uncertainties exist to argue a market bottom. Some of the areas we find discomfort in right now:
- Large companies are beginning to get their credit downgraded such as Disney, Ford and others.
- Financial stress index was recently approaching 2nd highest level in 26+ years
- Risk Subindex which covers 100+ financial indicators was in bear zone
- 30-35% of S&P 500 profits come from Overseas. Many of these countries are in terrible condition. Take Europe for example that was in a recession pre coronavirus..
- Public companies are pulling financial guidance, leaving analysts in denial
- Company debt at all time highs during limited economic activity + $500 billion in debt that is on the verge of being downgraded to “junk grade.”
- China Coronavirus reporting is questionable and 2nd waves are already hitting
Bitcoin Technical Analysis
In previous Bitcoin technical analysis, we adjusted our key support level to $6,400. We had mentioned that if $6,400 levels could hold, you could see a $7,200 test to the upside. That all came to fruition as Bitcoins price recently surged to the $7,200 test.
After testing that level, it could not penetrate above. $7,200. We will be looking to see if Bitcoins price can hover above $7,200. If so, we could see a $8,000 test in the short term. The moving average setup looks favorable to argue this right now. On the flip side, if we don’t get enough momentum to power through $7,200, Bitcoins price could very well retest $6,500 levels in the short term.