Another day, another record high for Bitcoin. The digital currency has hit a high so far of $48300, finding additional momentum after Monday’s big rally when the Tesla announcement triggered buying frenzy.
As bitcoin prices rise, it is quite important that more and more companies start accepting Bitcoin and other cryptos as a form of payment, because ultimately digital currencies are meant to be medium of exchange as well as store of value.
Investors have been piling into cryptos over the past years with the hope they will become mainstream in the future, and now we are nearer that future when digital currencies start supplementing fait currencies. So, it is important we see more high-profile companies like Tesla get into cryptos.
There are also worries about the value and worth of fiat currencies, with governments worldwide debasing their currencies, making them less worthy, which is another reason a growing number of people are moving into digital currencies. Some would go as far as to say that even gold has lost its true safe haven status as it is being manipulated in the paper form with many central banks and other institutions allegedly keeping precious metal prices superficially low. Some investors clearly think that Bitcoin is thus offering a much better store of value, and a good rate of return than gold, even at these high levels.
Momentum-chasing traders also responsible for Bitcoin’s rise
Bitcoin is also finding additional interest due to its strong bullish momentum. People like things that are rising rapidly in value, and this bullish momentum has drawn many speculators who like to ride the uptrend for hopefully some decent profit.
Source: ThinkMarkets and TradingView.com
The rally has been accelerating ever since prices broke above that 2017 high near $20K in December. Unless Bitcoin now breaks its series of higher highs and higher lows, the path of least resistance remains to the upside, with $50K now being the next major objective.
As well as a psychologically-important level, the $50K area also corresponds with the 161.8% Fibonacci extension level of the last downswing from January high. This makes it an ideal profit-target area.
In terms of the longer-term outlook, the charts can’t tell you much other than what has already happened. It all depends on how Bitcoin will evolve over time. But Bitcoin is a true definition of something precious as both its supply is limited, and demand is very strong. So, I would think that its value will probably rise further over time, but it will correct itself here and there as investors take profit and so on.
If you trade Bitcoin, it is important to be aware of its correlation with other assets to have good idea when to take profit or when to buy etc. Bitcoin’s correlation with other assets have evolved over time. Since all the financial markets bottomed out in March 2020, its correlation has been a strong positive one with the S&P 500 and other global stock indices, as well as copper. But its relationship with gold and silver have been mixed, turning negative for the past 6 months or so as precious metals have struggled while cryptos have soared higher. In other words, investors perceive Bitcoin and crypto to be more of a risk asset than haven asset. This implies that when the appetite for risk falls, the crypto bull run could potentially end.