Market alert: Bitcoin a big winner in a trade conflict

A fierce return to a trade conflict has had a major negative impact on many markets like equity indices, Australian dollar or soybean. However, there is a one huge winner: Bitcoin. It has gained 60% in May alone, taking the year-to-date return above 100%. In this analysis we take a deeper look why has Bitcoin price skyrocketed as the conflict unfolded and analyze the price chart.

Summary:

  • Bitcoin suddenly attractive for Chinese investors
  • Fidelity, Facebook decisions do support prices too
  • Bitcoin price once again in a strong upwards trend

Why Bitcoin gains as trade conflict deepens

There are 3 reasons why bitcoin has suddenly become popular with the Chinese investors:

1. High tariffs could result in yuan depreciation that would restore some competitiveness for the Chinese exports but act to a detriment of the consumer. Chinese investors may want to diversify into assets like gold, dollar or yen and cryptocurrencies to avoid watering down of their savings
2. Bitcoin has one advantage over other assets – it can be transferred in the anonymous way and that is not trivial in a country with capital controls
3. Finally, Bloomberg reporter Ed van der Walt argues that bitcoin will be used by smugglers who will try to avoid US tariffs

It might be hard to quantify these factors but it seems like there’s a widespread consensus that the trade conflict has fueled the rally and the way it develops could impact Bitcoin price in a big way.   

Other factors at play

In our analysis from the last week we mentioned two additional factors that need to be recalled -  Fidelity offer for institutional investors and Facebook interest in blockchain technology. Facebook followed on this announcing relaxation of marketing related to cryptocurrencies. Finally one factor that plays an important role is a possible mining ban in China. This would certainly push mining costs up.

Is the market in a full-bull mode?

If May ended now, the monthly gain would be the largest since December 2017. Source: xStation5

Looking at the BITCOIN chart it’s clear that the rally compares to what we saw back in second half of 2017. This is the 8th straight week of advances and the last significant correction took place in February. Now that the $6000 barrier has been crushed, the question is: how much of the bear market can be recovered? The first key technical level to look at is $9800: 61.8% Fibo of the bear market and a local high from April 2018. This is coincidentally just a notch below the 5-digit number that we have not seen since March 2018.     

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Morning wrap (27.11.2020)
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