Why Bitcoin’s latest breakout has excited technical analysts
Several indicators say action is afoot in the cryptocurrency markets.
Bitcoin has been flying lately, although it's been flying more like a bat than a majestic albatross.
That is to say, it's been flying unseen in the dark, moving in comparatively jerky motions compared to its feathered equivalents, and dealing with a lot of unjustified slander just because it occasionally sucks blood. It also eats bugs.
Even so, its movements of late have been enough to excite many technical analysts.
- Bat fact! There are an estimated 900 to 1,200 different species of bats, making up about one fifth of the total number of mammal species.
One of the clearest indicators right now is the way Bitcoin has bucked the downwards trend that's persisted since Bitcoin hit its 2019 highs of around US$14,000. That downwards trend is indicated by the yellow lines, as seen on this chart below, from QuantumEconomics' quantum economist Mati Greenspan.
The same rise that punctured the downwards trend also put a hole in Bitcoin's 200 day moving average, which basically tells us that Bitcoin is out-performing its own average price over the last 200 days.
What's more, this rise is occurring over a foundation of relatively high volume, and we can see that aggregate open interest in Bitcoin futures has grown since the start of the year.
And while it's only a small slice of the total, we can also see that CME open interest has grown at an outsized rate relative to the total growth. CME daily volume hit a yearly (also known as monthly) high of $788 million on 28 January, and has quite consistently trended upwards since the start of the year. Some have suggested that this signals growing institutional interest in Bitcoin futures.
- Bat fact! Most North American bat species are not able to participate in private token sales because, with the exception of Bruce Wayne, they're not accredited investors.
Speaking of facts that are technically correct but of seriously dubious value, people are pointing out that Q1 2020 is one of Bitcoin's strongest first quarters ever, even as the first quarter of each year has historically been a losing period for Bitcoin prices.
Bitcoin prices fell every single first quarter, going all the way back to 2014. 2017 and 2019 were exceptions, handing Bitcoin gains of about 10% each. Q1 2020 is now on track to buck that trend in a big way, with gains of about 30% so far this year.
By many measurements, but by this measure in particular, Bitcoin is having an especially strong year so far. Of course, it's still only January. There's still plenty of time for Q1 2020 to turn into another loser.
The impending halving, scheduled for the month of May, may be injecting some vim back into the markets though. With Bitcoin prices, hashrates and miner profit margins all being where they are, the next halving could prove to be a definitive final test for the compelling Bitcoin stock to flow theory of value.
Based on recent price rises, and other factors such as recent institutional investments in Bitcoin mining, it looks like the majority of market-watchers are expecting Bitcoin to pass the test.
Disclosure: The author holds BNB, BTC at the time of writing.
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