Yesterday, for the very first time, Bitcoin broke above the $ 50,000 level, a breakout that is confirmed on Wednesday. Cryptocurrency enthusiasts predict that this time around, the largest digital currency by market cap is only at the start of its upward trajectory.
According to them, this time is different from the last time BTC took off, when it hit the $ 20,000 level at the end of 2017 before falling into a correction that lasted for over a year. However, the argument “now things are different” puts a strain on our market senses.
To be fair, the current environment has changed in two main ways:
- State of the economy
- Increased acceptance of the cryptocurrency asset class
Unprecedented stimulus measures, including in the United States, used to counter global economic distress caused by the coronavirus pandemic, are expected to trigger inflation for the first time in 12 years. This would proportionally lower the dollar’s yield, causing investors and savers to store value in some other form. In December 2017, when Bitcoin hit its highest level, the dollar index was at 94.00. Now he is below 91.
Even today, when the dollar peaked, Bitcoin has surpassed $ 51,000 at the time of writing, which is another breakthrough.
Additionally, the debate continues to rage around the claim that Bitcoin is siphoning off safe haven demand from gold. But the digital token has hit a new all-time high and is trading at the top of the day, even as the precious metal is falling due to the strength of the dollar, which could reinforce the idea that cryptocurrency, which many have dubbed digital gold, at least now usurping the safe haven status of.
Add to that what appears to be a vast reassessment of the new asset class by investors. In 2017, many viewed bitcoin as a gimmick, or a naive dream among star-eyed young people looking to supplant fiat currencies.
Today, institutions are increasingly interested in Bitcoin and the crypto asset class. In September 2017, Ray Dalio, billionaire founder of Bridgewater Associates, the world’s largest hedge fund, said BTC was “not an effective safeguard for wealth because it is volatile, unlike gold” .
This year, however, on January 30, Dalio did an about-face. “I very much admire how Bitcoin has stood the test of 10 years of time,” he said, adding:
“It seems to me that Bitcoin has managed to cross the line between a highly speculative idea that may not exist in the near future and an idea that may have some value in the future.”
The February 8 revelation that Tesla Inc (NASDAQ 🙂 had invested $ 1.5 billion in crypto and that the company planned to accept it as a payment method in the future added weight to the Bitcoin affair. That’s not a big surprise, of course, since the founder and CEO of the electric vehicle maker, Elon Musk, has been a cryptocurrency supporter for some time.
Mr. Dalio continues to warn that Bitcoin is extremely volatile and investors could lose 80% of their investment if volatility continues. He even went so far as to say that countries around the world could ban digital currency if it continues to rise.
It’s ironic that for older, more accepted assets, market highs are usually signaled when retail investors get started. However, for this new asset class, it looks like a top could be just around the corner when institutional “smart money” joins the party. This is why we are issuing a warning that Bitcoin is overheating and seems to need to catch its breath.
As the price of the rose, its momentum slowed, showing weakness in the uptrend, a signal for a potential pullback. Also, the RSI above 70 indicates that it is overbought.
In this context, here is an example of a position taken to take advantage of a Bitcoin correction:
- Admission: $ 50,000
- Stop-Loss : 52 000$
- Risk: $ 2,000
- Objective: $ 40,000
- Yield: $ 10,000
- Risk / reward ratio: 1: 5