After Bitcoins massive sell-off a week ago, it has changed sentiment since hitting a low of around $4,106 on March 13th. Despite Bitcoin price falling with traditional markets originally, it has experienced upside during continued turmoil in traditional markets. Altcoins have recovered as well during a time where the digital asset markets are trying to stabilize with potential recessionary pressures mounting in the stock market.
With Bitcoin price inching up the last few days, it has creating some hope in the altcoin markets as well. Below is the last 1 week relative performance in the cryptocurrency markets.
Last week Bitcoin price experienced a sharp sell-off, losing nearly half of its value. This move shocked many investors who believed Bitcoin would act as a global hedge during the massive stock market plunge last week. As mentioned in a previous report, it was unfortunate to see the Bitcoin price action act in that capacity, but it came during a time where investors globally were looking for liquidity. Aside from investors that expressed disbelief, others understood the circumstances and believed Bitcoin would sustain its-self in the near term. Since last week, Bitcoin price has surged around +19%, wiping out the negative sentiment that existed last week. With global markets in panic mode, Bitcoin made a bull case by effectively rebounding and outperforming the S&P 500 the last 5 trading sessions:
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Bitcoin Rebounds Stronger Than Gold
Gold also struggled last week, as investors flocked to cash. Investors in the commodities markets were concerned with Gold, as it followed both Bitcoin price and traditional markets to the downside. It’s another reason to argue the Bitcoin bull case. Gold has historically been one of most effective store of value / hedge assets during market uncertainty. The fact Gold struggled last week was a pure sign that investors were selling any of their assets that were liquid for cash. The bullish case for Bitcoin resides in the last 5 – day price action. Opposed to Gold, Bitcoin was actually able to recover and rally during continued stock market sell-offs. The chart below displays the 5 – day price action. Gold has struggled to shake off the sentiment from last week, posting negative returns the last 5 days. Bitcoin price on the other hand has experienced sharp upside as outlined before.
Further Assessing Bitcoin Sell-off From Last Week
As mentioned in a previous report, banks have been experiencing a liquidity crisis which has forced the Federal Reserve to take action. It’s important to understand “liquidity shock” and how it played a role in Bitcoin sell-off last week. As new developments surfaced around Coronavirus and oil last week, investors rushed to the gates. “Liquidity shock” is extremely rare, but when it occurs you tend to see all asset classes sell off. In this environment all traditional investing norms involving rebalancing & reallocating essentially go out the door. Traditional markets have gone straight down since early March, which has put a lot of liquidity pressure on banks. The liquidity shock seems to be led by the baby boomer generation that is nearing retirement. This generation has gone through their fair share of market turmoil. Many investors in this generation simply don’t have the stomach or proper time horizon and ask the question “when will the stock market recover?”
Bitcoins price sold off as investors were flocking to cash and were selling assets that were liquid. This fact that gold and treasuries sold off while equities sold off is pure evidence of this theory. Investors were simply selling both risk and safe haven assets. Investors have continues to flock to cash this week. Despite the Federal Reserve injecting $125 billion into the markets Monday through Wednesday, treasury yields were were still rising which signals decreasing demand in safe haven assets. The Federal Reserve is pushing strong “quantitative easing” protocols as last resort efforts to stimulate the economy during market turmoil with Coronavirus outbreaks.
Bitcoin Technical Analysis
As Bitcoins price currently hovers around $6,200. We take a look at some key levels. Bitcoins price has built some support around $5,600. You will want to see BTC hold that level to maintain upward price momentum. If Bitcoin can rally beyond $6,600 it could test $7,500 to the upside in the short-term. On the flip side, if Bitcoins price rejects support levels at $5,600 it could very well fall to $4,000 regions. The bull case right now is Bitcoins price starting to rally off a “double bottom” that was triggered right around $5,200 levels that is outlined with the 2 square boxes on the chart below.
Is Global Recession Coming?
The Federal Reserve is deploying all options to avoid this, but it could depend on the longevity of Coronavirus. A recent report stated that Bank of America announced we are entering a recession where “jobs will be lost, and wealth will be destroyed.” The Federal Reserve is on pace to inject over $1.5+ trillion into the financial system to avoid this. As Visionary Financial has mentioned before, corporate debt is on the verge of a break. The Federal Reserve has artificially kept interest rates low for years, which has resulted in corporations taking out massive amounts of cheap debt. For example Corporate debt in the manufacturing sector has reached $80 billion + which hasn’t been seen since 2002. The problem here is that the debt is “short-term debt” , which has to be repaid in less than a year. With companies around the globe experiencing massive slowdowns from Coronavirus, it applies a lot of unexpected risk to these companies. Without cash flow, these entities will have a difficult time servicing this short-term debt. The chart below shows these debt levels.
In addition, the stock market rebounded a bit on Thursday, but many would argue the sentiment is still weak for the amount of quantitative easing the Federal Reserve has taken. Many investors see a potential disaster brewing where the Fed is running up the deficit by creating trillions out of “thin air.” The Feds balance sheet now surpasses $4 trillion compared to $800 billion in 2008..
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