While gold, the yellow precious metal, is making all the headlines after it broke to a new record high today, don’t forget about Bitcoin – the so-called “digital gold,” which looks quite bullish.
Bitcoin has shown an acceleration in its bullish momentum over the past few days. Ongoing weakness in the dollar is one of the reasons why BTC/USD has gone up. Another reason is that many people view the crypto as an alternative to gold and thus take cues from the direction of the metal. With gold prices surging higher, demand for Bitcoin has correspondingly risen from this group of investors or speculators. Then there are those who view Bitcoin as more of a risk than haven asset. Well, risk assets such as equities have risen sharply higher from their March lows, and so too has Bitcoin, over the past few months.
So, it is not 100% clear what the main reason is for it to have gone up from a point of view of risk appetite. But with so much central bank money flooding the bond markets, it is unquestionable this has driven many people to look for alternative investments outside of the traditional equity markets. And Bitcoin certainly falls under alternative investments.
Thanks to its recent gains, Bitcoin now looks poised for a potential breakout. Previously, BTC/USD had several attempts at breaking away from the key $10K area, with the rally on at least three separate occasions faltering round $10500. It is now approaching this same $10500 level again following its latest breakout attempt above $10K. Only this time the technical backdrop appears stronger:
Source: TradingView.com and ThinkMarkets
Why do I think the technical backdrop is stronger this time?
- Well for a start, the last re-test of the $10500 resistance area in June only led to a moderate retracement compared with the previous occasion in February. This alone suggests that the selling pressure has weakened since the start of the year, and the buyers are willing and happy to bid the market at relatively higher levels.
- What’s more, the price of Bitcoin has been consolidating in a tight range below resistance for several weeks now. With so much time having elapsed, Bitcoin should have gone down already if resistance here was truly strong. This makes the alternative scenario i.e. a breakout, more appealing.
- Furthermore, Bitcoin last week closed above a bearish trend line that had been in place since the peak of 2017. With this bear trend broken, the buyers have now more technical confirmation to exert upward pressure on prices.
While technical analysis alone cannot give you a true picture of what is going on, but for what it is worth, Bitcoin’s chart does certainly look quite constructive as things stand. As a technical analyst, I can’t be bearish Bitcoin right now, even if I have mixed fundamental feelings for it. I may share those mixed feelings on another occasion. But right now, I therefore think that Bitcoin is likely to break decisively higher and potentially push significantly higher on this occasion (rather than a mere fakeout).
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