Bitcoin Quietly Rising from the Ashes - Where to Next?

02/14/2020 9:14 am EST

Focus: CRYPTOCURRENCY

Matt Weller, CFA, CMT

Global Head of Market Research, FOREX.com

Bitcoin is making a resurgence that is going largely unnoticed, reports Matt Weller.

For many traders, the recent parabolic surge in Tesla (TSLA) evokes a euphoria reminiscent of that surrounding cryptocurrencies back in late 2017, when Bitcoin peaked near $20,000. As we all know, Bitcoin ultimately collapsed to trade at just $3,200 a year later.

Many traders who wrote off Bitcoin after its 85% drop may want to tune in again. The cryptocurrency has quietly risen from the ashes of despair to triple over the last 13 months. While the rally in price itself is certainly impressive, the most important word in that sentence may be quietly. Unlike the heady days in late 2017, when Bitcoin was a daily fixture in traders’ minds and financial media, once it broke $10,000, relatively few market participants are even aware that Bitcoin has been rallying, much less obsessing over its day-to-day fluctuations.

Attention is notoriously hard to quantify, but using Google Trends search volume as a proxy, we can see that search interest in “bitcoin” was roughly 11x higher at the peak in late December 2017. More to the point, search interest was already 7x higher the first time Bitcoin broke above $10,000 in late November 2017 (see chart below).

googletrendsbtc
Source: Google Trends, GAIN Capital

The relatively low level of retail interest in Bitcoin suggests that we’re nowhere near the mania levels that drove Bitcoin through $10,000 for the first time a little over two years ago. In other words, the formation of another similar bubble (a common occurrence in Bitcoin’s relatively short history) could lead to the cryptocurrency exceeding its previous record highs near $20,000.

While longer-term measures of sentiment remain subdued, the short-term price action suggests that Bitcoin’s rally may be due for a breather. Prices are approaching the highs from August, September and October of last year in the $10,500 to $11,000 range, with the Relative Strength Index (RSI) indicator showing signs of stalling out in overbought territory.

Given this backdrop, short-term bears could consider sell opportunities below $11,000 for a potential retracement back toward $9,000 or the mid-$8,000s. Meanwhile, longer-term bullish traders may want to hold off on new purchases near current levels and wait for a pullback to accumulate more Bitcoin in case we see another bubble form.

Hear what Matt Well had to say about Geopolitics, Economics and the Forex Markets at the recent Las Vegas TradersExpo. Matt Weller | Global Head of Market Research | GAIN Capital mweller@gaincapital.com | w: www.forex.com www.cityindex.co.uk

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