Bitcoin Eyes Another Major Milestone as Technical, Fundamental Forces Unite
Following months of accumulation, the bitcoin (BTC) price may be entering a prolonged bullish phase that mirrors the multi-year rally that began in October 2015 and peaked in December of 2017. To understand why, we need to look at three interrelated factors: technical analysis, smart money accumulation and retail interest.
As Hacked reported earlier this month, bitcoin’s price officially turned bullish after the 50-day moving average crossed the 200-day MA. But an analysis of different time frames suggests that the leading digital currency is about to do something it hasn’t done since October 2015.
As crypto trader Jonny Moe recently pointed out, a bullish crossover of the 20-day simple moving average (SMA) and 200-day SMA appears imminent. If the previous cycle is any indication, this crossover could ignite a prolonged rally that leads bitcoin to new record highs.
$BTC about to have its first bullish 20-200 SMA cross since Oct 2015. Note that it took 2 of these crosses before the uptrend began.
I'm not usually one to try and call out absolutes like "THE BOTTOM IS IN!!!", but it's certainly shaping up like that could be a real possibility. pic.twitter.com/AG1L2CUmhq
— Jonny Moe (@JonnyMoeTrades) April 10, 2019
The following chart highlights the path of the two moving averages and their likely convergence in the not-too-distant future. Also note the severe overbought levels reflected in the Relative Strength Index (RSI). This means investors can expect price action to cool and pull back on its way north.
Mainstream media outlets have been quick to point out that institutional interest in bitcoin hasn’t materialized because of volatility and custody issues. But the actual data reveal the opposite is true.
Institutions are, in fact, trading bitcoin with greater intensity. As Hacked reported back in February, the market for private bilateral bitcoin contracts is worth anywhere between $125 million and $500 million per month. While this is a drop in the bucket compared with more conventional asset classes, it disproves the idea that institutions are scared of trading bitcoin.
On April 4, CME bitcoin futures hit a record 22,542 traded, according to Bloomberg. That’s equivalent to 112,710 BTC. As of April 8, average daily trading volume for CME bitcoin futures was 13,400 contracts. That’s more than five times higher than the month through March 1.
Smart money has also been absorbing much of the selling pressure, as evidenced by the sharp decline in short positions. Year-to-date, bitcoin short positions have fallen almost 42%, according to the BTCUSDShorts chart. Shorts are also down more than 50% over year-ago levels.
Retail traders were the major force behind the 2017 bull market. During the height of crypto euphoria, it was virtually impossible to open a new trading account on any of the leading virtual exchanges due to the sheer volume of requests. This prompted many crypto exchanges to temporarily suspend new account creation until they beefed up their infrastructure and resources.
As the crypto bubble deflated, retail interest all but went away. This was reflected not only in the sharp drop in reported trading volume but in the sudden collapse in Google searches for terms like “bitcoin” and “cryptocurrency.”
Google searches are a reliable proxy for retail interest in digital assets. When the market peaked, Google trend results for “bitcoin” and “cryptocurrency” achieved the highest possible score (100/100). As of April 6, searches for these keywords had skyrocketed once again.
As the following chart shows, bitcoin’s trend score reached 74/100 in the week ended April 6. It has since fallen back to 57 but remains well above levels seen during the bear market.
Activity on virtual exchanges, where the bulk of retail traders operate, has also surged. Cross-market trade volumes have increased more than six times from last year’s low.
The Bottom Line
Based on the factors presented above, bitcoin’s outlook remains bullish and a continuation of the recent uptrend appears likely. Of course, the crypto universe could change drastically overnight. For investors, the key is managing short-term fluctuations with the long-term value proposition. The long-term view is brighter than ever.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.