What could trigger the next bitcoin rally?
The recent lackluster price actions of bitcoin have been testing crypto traders’ patient as the trendless situation endures. While this seems no end in sight, many crypto watchers have been asking when this going to end? Should we expect a positive breakout or a price correction? A recent comment from a heavyweight crypto critic sheds light on the outlook of the leading cryptocurrency, and the equity markets may hold to the key of the next bitcoin rally. We have studied the nature of bitcoin as a safe-haven asset like digital gold, and we will explore bitcoin’s risk-on characteristic and what could trigger the sentiment to shift.
The prices of bitcoin have been in range trading since early July and the range has been increasingly narrow in recent weeks. While the markets seem generally believe that the dull price actions are part of the setup for the next big move of the leading crypto, many of the traders have been taking a wait-and-see approach, the gradual slowdown in trade volume could give you the picture (figure 1), some comments even go more pessimistic, saying that bitcoin dominance has peaked at 70 percent and will hardly back to the 80 percent levels we’ve seen three years ago. (figure 2).
Figure 1: BTCUSDT Daily Chart
Source: OKEx; Tradingview
Equities: Key to Bitcoin Rally
Just recently, a heavyweight crypto pundit has shed light on what could be the next big move for bitcoin, and what could trigger the move. In an interview with CNBC, Tom Lee, Co-Founder and Managing Director and Head of Research at Fundstrat Global Advisors, believed that bitcoin’s recent stalled price action was attributed by the stalled macro outlook. Lee added that “A world without trend, bitcoin doesn’t go up.” He stated that when the S&P reached a new all-time high, it would be bullish for bitcoin. When we look through the past two years, when the S&P was in range trading, coincidentally, bitcoin was in range trading as well (figure 4). This happens twice in 2018 and once just recently.
Figure 3: S&P 500 and BTCUSD in See-Saw Patterns
Figure 4: S&P 500 YTD Chart
A world without trend, bitcoin doesn’t go up.
Tom Lee, Co-Founder and MD, Fundstrat Global Advisors
Lee studied the comparative return of the S&P and bitcoin, he found that bitcoin does best when the S&P’s up more than 15 percent (figure 5). His findings concluded that bitcoin’s like a coin with two sides, on one hand when the markets experience turbulence, it acts like digital gold, on the other hand, when markets are in the risk-on mode, bitcoin could also be a risk-on asset.
Figure 5: Comparative Return of Bitcoin and S&P 500 Since 2010
Source: Fundstrat; Bloomberg; Factset
There were signs of optimism globally as we enter the final quarter of 2019. Looking ahead, some macro events could potentially be market movers.
We’ve seen the prices of bitcoin have been flip-flopping in a narrow range, while traders’ attention has been shifting to the altcoin world. However, according to a prominent crypto analyst, the bull case of bitcoin remains strong and rallies in the equity markets could trigger a fresh round of bitcoin buying and could turn the leading cryptocurrency from a safe-haven asset to a risk-on investment. However, the picture seems to remain somewhat mixed when it comes to a bull case of the equity markets.